Lack of accountability, alleged role as lobbyists for firms put them in doubt
More than half of outside directors are set to be reelected at upcoming shareholder’s meetings for the country’s major companies, reigniting the dispute over their “neutral” position.
Even new outside director positions are forecast to be filled with retirees from powerful government agencies such as the courts, tax office and prosecution, fueling concern about their roles being reduced to a conduit for lobbying between corporations and government officials.
Data from the Financial Supervisory Service showed that 68 listed firms among the top 100 that close their books in December plan to elect a total of 178 outside directors this month.
Of the total, 93 incumbent outside directors (52 percent)will see their role extended for another term while 85 (48 percent) will be newly appointed, according to the data.
Samsung Electronics, for instance, will reappoint a lawyer from Kim & Chang, the country’s biggest law firm, as its outside director at its shareholder’s meeting slated for March 16.
Hyundai Motor will also reappoint a former high-ranking tax official and a fair trade agency official as outside directors.
POSCO is known to be planning to keep three of the existing four outside directors in an apparent move to maintain the current system.
Outside directors have long been under fire for their failure to establish credible independence in corporate decision-making, largely because their appointment is tightly controlled by the companies’ top managers. It is rare that outside directors openly voice opposition at board meetings, casting doubt on whether the system has any function, critics said.
The outside directors who will be appointed for the top companies are mostly elites, many of whom used to work for the government and other powerful agencies.
By occupation, professors make up the biggest proportion as 62 professionals in academia are tapped to offer advice to leading companies. Trailing behind are former high-ranking officials, including ministers and vice ministers, prosecutors, tax officials, trade regulators.
It was in 1998 during the Asian financial crisis that the outside director system was first introduced in Korea to keep businesses from abusing their power.
But outside directors tend to maintain close relations with top managers and refrain from offering differing views in order to retain their position in a way that compromises their own independence.
One underlying issue is that forcing outside directors to take responsibility for their actions is virtually impossible, which has to do with their role described as a “rubber stamp.”
“At the board meeting, regular directors could be severely punished when their decisions hurt the company under the law, but the punishment for outside directors is too light to be taken seriously,” Chung Sun-sup, president of Chaebul.com, a research firm specializing in conglomerates, told The Korea Herald.
The lack of accountability on the part of outside directors is translating into the near absence of effective outside supervision on the way a company makes key decisions.
“When we looked at the board meeting documents, outside directors’ attendance rate for the meetings reached nearly 90 percent, and their vote rate against the management’s decision was near to zero,” Chung said.
Getting reelected for an extended period of time and holding multiple outside director positions are also cited as problems that undermine the system, critics said.
The Justice Ministry is now pushing to reform the outside director system by revising the related bill so that people cannot hold more than two outside director positions at the same time.
By Yang Sung-jin (
insight@heraldcorp.com)
