Value context and insight. lkm@koreatimes.co.kr
Outside directors still a 'rubber stamp' in Korea
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By Lee Kyung-min
By Lee Kyung-min
Little opposition was voiced by outside directors at large conglomerates' board meetings in 2019, indicating the failure of a measure that was made to push the supposedly disinterested forces to balance out the emperor-like, centralized power at the top, data showed Sunday.
Mostly filling the seats are those with close ties to firm owners, making it hard to outright criticize ― despite sufficient grounds ― what they believe could cross into criminal activity.
Critics say that a major overhaul is required to change the makeup of recommendation and nomination committees that are under heavy influence of the owners of the firm or internal directors close to them.
Data from the Financial Supervisory Service (FSS) showed only two out of over 2,600 motions deliberated at 971 board meetings failed to pass, one each from Hanwha Group and Hanjin Group.
The meetings were held by 102 listed affiliates of the top 10 business groups.
Not a single “no vote” was cast by 57 outside directors at 16 listed affiliates of Samsung, 50 of 12 listed affiliates of Hyundai and 59 of SK Group.
The same was true for LG with 42 outside directors, GS (22), Shinsegae (23) and Hyundai Heavy (19).
The uniform votes are in part a result of a vetting process for the board in which way the members vote, but a larger part comes from the fact that the owner family's clout almost always trumps what others have to say, according to an economist.
“The problem of outside directors being reduced to being a rubber stamp will not go away unless how they get to be where they are is addressed,” Yonsei University economist Sung Tae-yoon said.
The independence of outside directors can be guaranteed by setting up a separate committee tasked solely to audit and direct voting, or limiting the voting rights of those close to the firm owners.
Yet, with none of those measures in place, criticizing the votes designed to be cast only one way is meaningless.
“Imagine whether you would be able to express your opposition to someone you know who gave you the position. It would be considered a betrayal,” Sung said.
This is why most of the firm owners hire someone who they went to high school or university with, or current or former heads of a firm's key affiliates.
In other cases, those who carried out the consulting services or those with considerable shares in the company fill the position.
“If they have a relationship, or more importantly a shared interest, they are much easier to pull to the same side than those with a neutral perspective. For management, having a vote is crucial in pushing any major corporate decision,” he added.
Firms sometimes hire former prosecutors and judges or those from the FSS, Financial Services Commission and Fair Trade Commission.
But these are more of a stop-gap response to avoid the much-criticized “appearance of impropriety,” not for enhancing the internal governance structure.
“The only hope in helping solve the decades-long problem is a recent revision under which the terms of outside directors are limited to six years. Whether that would have the desired effect remains to be seen.”