A large number of lawyers belonging to the country's major law firms are hired as outside directors by conglomerates in violation of current laws, a report showed Monday.
According to the report by Chaebol.com, of the 454 outside directors hired by the top 100 listed companies in the country, 76, or 16.7 percent, are lawyers or advisers for local legal firms.
The country's seven largest conglomerates have hired 49 lawyers, making up roughly two-thirds of their outside directors, it said.
"Hiring people from law firms as outside directors can result in a conflict of interest and is in violation of existing laws," the corporate information services provider said.
Outside directors are tasked with overseeing how the company does its business and to check for any abuse by managers that can hurt investors' rights.
"Because law firms rely heavily on big companies for their business, it is effectively hard for lawyers to monitor or prevent abuse by corporate managers who are also important clients," Chaebol.com claimed.
It said there are laws that make it illegal for lawyers from firms to work as outside directors for client companies, but there is no real way for the government to enforce this rule.
Of the major legal services companies, Kim & Chang, the No. 1 law firm, had 20 outside directors as of late June, followed by Bae, Kim & Lee LLC. with 11 and Lee & Ko, Barun Law and Shin & Kim with four each.
Hyundai Motor Co., the country's biggest carmaker, and Shinsegae, one of the country's largest retailers, had the highest percentage of lawyers working as outside directors. In Hyundai's case, three out of five outside directors were lawyers.
The Financial Supervisory Service, meanwhile, said it has no authority to regulate outside directors hired by companies, while the Justice Ministry said it could slap fines on violators for hiring lawyers, although no such action has ever been taken in the past.
Other loopholes that make it hard for authorities to crack down on such practices is the fact that legal services companies do not technically hire so-called advisers of law firms directly.
"There are even claims that advisers should not be barred from working as outside directors," a government official said.
In terms of resolving this issue, Kim Woo-chan, professor at the state-run Korea Development Institute, said there is a need to change the country's fair trade law so no conflict of interest can occur.
"A clause can be inserted, making it impossible for lawyers at firms that offer legal services to companies to be hired as outside directors," the professor said. (Yonhap)