Interview 'When the watched pick watchers': Korea Inc. still lags on board independence

Ashley Summerfield, right, Egon Zehnder's Global Board and CEO Practice Group leader, and Lee Hee-jae, second from right, the firm's Seoul office leader, participate in the J.P. Morgan Korea Conference at The Shilla Seoul, Thursday. Courtesy of Egon Zehnder

Korean corporate governance has improved significantly over the past decade, but board independence remains a key structural weakness that continues to weigh on investor confidence, according to leaders at Egon Zehnder.

In many conglomerate-affiliated companies, independent directors are still appointed with the influence of controlling shareholders, limiting the board’s ability to effectively challenge management, a factor that has contributed to the persistent “Korea discount," they said.

Egon Zehnder is the world’s largest privately held executive search firm and the third-largest globally in executive search and leadership advisory. Its Seoul office has been operating for more than 25 years.

“The most fundamental issue is board independence in practice, not just on paper. Independent directors exist, but in chaebol (conglomerate)-dominated companies, they have historically been appointed through controlling shareholder influence, which means the oversight function is often compromised,” Ashley Summerfield, Egon Zehnder's Global Board and CEO Practice Group leader, said in an interview with The Korea Times.

Ashley Summerfield, Egon Zehnder's Global Board and CEO Practice Group leader / Courtesy of Egon Zehnder

“Global best practice requires boards that can genuinely challenge management, and Korean boards have much room for improvement on this front.”

Summerfield, based at the firm's London office, visited Seoul last week to attend the J.P. Morgan Korea Conference Thursday, where he led seminars on governance and board evaluation. During his visit, he also met with executives from multinational institutions and major Korean corporations.

Summerfield said controlling families at some Korean firms have routed profits through related-party transactions or restructured entities in ways that benefit insiders at the expense of outside shareholders. This has been a key factor behind the Korea discount, where Korean companies trade at a structural valuation gap compared with global peers, although the gap has narrowed somewhat in recent years.

Summerfield stressed that while Korea’s owner-centric governance structure has helped drive the rapid growth of the country’s conglomerates, it also raises questions about board effectiveness.

“The owner-centric model built Samsung, Hyundai and LG, essentially from the rubble,” he said, noting that strong ownership enabled decisive and long-term decision-making.

But he warned that the same structure can weaken oversight when controlling families also influence board composition.

“When the person being watched also picks the watchers, you don’t really have a board — you can have a very well-dressed cheering squad,” he said.

In addition, he pointed to shortcomings in capital allocation transparency, saying many Korean companies sit on large cash reserves without clearly explaining their strategic rationale to shareholders.

“Global investors expect much more discipline and communication around dividends, buybacks and M&A (mergers and acquisitions) decisions,” he said.

Board diversity also remains limited, he said, noting that greater consideration of international directors, in addition to more women directors, could strengthen board composition as Korean firms expand globally.

The National Assembly passes the third amendment to the Commercial Act aimed at requiring the cancellation of listed firms' own shares, Feb. 25. Yonhap

An encouraging sign, according to Summerfield, is that reform efforts are gaining real momentum, with the government’s Corporate Value-up Program and recent amendments to the Commercial Act marking meaningful progress.

Still, Korea’s growing adoption of board evaluations risks becoming a formality if poorly designed.

“For evaluations to be effective, three things need to happen,” he said, citing independent external facilitators, outcome-focused questions and real consequences tied to director re-nomination decisions.

He also said broader cultural change is still needed so boards that hold management accountable are seen as a source of value rather than a threat to controlling shareholders.

'Safe, but not soft' boardroom

As a global executive search and leadership advisory firm, Egon Zehnder has conducted more than 1,000 board effectiveness reviews worldwide. Based on that experience, Lee Hee-jae, the firm's Seoul office leader, said high-performing boards share several defining characteristics.

Lee Hee-jae, Egon Zehnder's Seoul office leader / Courtesy of Egon Zehnder

First, he said, strong boards are built with balanced and forward-looking composition, selecting directors not only for experience but also for judgment, diverse perspectives and the ability to provide both foresight and oversight.

Second, they foster constructive boardroom dynamics.

“Effective boards operate with psychological safety, robust debate and a culture that avoids common mind traps such as agreement-seeking, over-simplicity or ego-driven intervention,” he said, adding that discussions should focus more on strategic issues such as succession, culture and long-term risk rather than only past performance.

Third, high-performing boards emphasize continuous development, regularly reviewing their performance and refreshing membership.

Lee highlighted that a “safe, but not soft” boardroom is one where directors feel comfortable challenging management and raising dissenting views while maintaining mutual respect and trust. This balance is typically supported by strong chairmanship, disciplined listening and clear roles between the board and management.

Regular interactions such as private chair-CEO meetings and independent director sessions without management can help maintain constructive tension, ensuring that oversight and challenge function as a form of partnership rather than opposition.

Regarding CEO succession strategy, Lee said a world-class approach is continuous, forward-looking and closely aligned with a company’s long-term strategy. Rather than being triggered only when a leadership transition becomes imminent, leading boards treat succession as an ongoing stewardship responsibility. They regularly review internal talent, benchmark candidates and prepare both planned and emergency scenarios to ensure the company is developing leaders suited for future challenges.

“This disciplined and transparent approach equips organizations to select leaders who not only fit today’s needs but can also steer the company through disruption and future inflection points,” he said.