Chaebol favor ex-officials as outside directors

By Kim Tae-jong

Combating accusations of corruption and crony capitalism, chaebol, or Korea’s mighty family-owned conglomerates, have speechified about cleaning up their governance. However, the habit of filling outside director seats with former policymakers, figures from the tax authorities and law men, apparently hired for their ability to look out rather than look in, suggest that management at these big firms remains opaque.

According to data from the Financial Supervisory Service (FSS) and business analysis website Chaebul.com, a total of 330 people served as outside directors of the 93 affiliates controlled by the country’s top-10 business groups, led by Samsung and Hyundai.

Of the 77 outside directors newly hired in the past year, 29, or nearly 38 percent of them, were former government officials, judges and prosecutors. The policymakers-turned-directors were coming off careers at government ministries, the National Tax Service, Fair Trade Commission, the Korea Customers Service and even the financial regulator. It is as if the firms that hire them intend to use them for lobbying purposes.

Overall, 121 former public servants are currently working as outside directors for the top-10 business groups, accounting for nearly 37 percent of the total seats.

Most notably, former Knowledge Economy Deputy Minister Kim Jeong-gwan is on the payroll of Samsung Life Insurance, while former Seoul High Prosecutors’ Office chief Moon Hyo-nam is with Samsung Fire and Marine Insurance.

Among the nine former government employees representing more than one company, former Labor and Employment Vice Minister No Min-gi is an outside director for both Samsung SDI and Lotte Midopa. Former National Intelligence Service official Moon Seong-woo is with Korea Life Insurance. University professors accounted for 31 of the recently appointed outside directors, who include only four businessmen.

Korea first allowed outside directors in 1998 to balance the management at chaebol and to protect shareholders’ interests against the greed of the corporations’ founding families.

But critics say the system is failing to serve its purpose. They point to the recent secondary banking crisis, which was halted only after financial regulators suspended more than 20 savings banks that were on the verge of going under. Outside directors at these banks were heavily criticized for failing to monitor the lenders properly and basically not doing their jobs.

``The hiring of former government officials show that chaebol are abusing the outside director system, using the seats for lobbying purposes, to maintain their murky management practices,’’ said Lee Gi-woong, an official from the Citizens’ Coalition for Economic Justice.

He added outside directors think of their job as a “yes man” to the management that demands little responsibility, labor or active service but this should change.

He also criticized the high proportion of professors as outside directors because they can manipulate public opinion to be more favorable to conglomerates through their research and interviews with news media.

To tackle the problems associated with outside directors, the Financial Services Commission and the Ministry of Justice plan to submit a bill to revise the current law concerning the system.

“After the savings bank fiasco, there have been demands to strengthen the professionalism and independency of outside directors,” an official from the FSC said.