Large companies' outside directors should stop being yes men
Outside directors at listed affiliates of major conglomerates voted for almost all agenda items at board meetings last year.
According to CEO Score, a corporate tracker, nonexecutive directors at 251 listed units of 57 business groups approved 99.7 percent of the total 6,350 motions forwarded to the boards in 2018. In the case of 46 family-controlled conglomerates, or chaebol, the approval rate was 100 percent, it said.
That explains why people call these independent directors "rubber-stamps." Outside directors are supposed to play the role of keeping large shareholders and top managers in check, as the owner families tend to act in their own interest or make wrong managerial judgments. However, outside directors seemed to raise few objections at board meetings.
This is because chaebol subsidiaries recruit nonexecutive directors mainly as "windshields." For similar reasons, most of these independent directors are former judges, police officers, taxmen and financial regulators. They know too well to voice any opposition; outside directors must not fall out of favor with the tycoons if they want to retain their posts. Sometimes, chaebol owners' classmates or former executives sit in directors' chairs, making it hard to expect to hear different opinions at board meetings.
The time has long past for Corporate Korea to enhance the independence of outside directors. Above all, recommendation committees made up of independent directors should be free from the control of owner families. These panels can seldom select independent directors righteously if group chairmen or executive directors lead them. Policymakers need to work out methods to ensure the independence of outside directors within the boundaries of not hurting the self-reliance of businesses.
Chaebol companies also ought to recognize the positive role of outside directors. They should realize that nonexecutive directors who offer differing views can better help conglomerates and their owners than yes men. Outside directors who apply restraint before problems get worse are precious assets for businesses.
Hanjin Group Chairman Cho Yang-ho lost his title as the CEO of Korean Air, Wednesday. This would not have happened had the group's outside directors not been allowed to fulfill their proper duties.
Outside directors at listed affiliates of major conglomerates voted for almost all agenda items at board meetings last year.
According to CEO Score, a corporate tracker, nonexecutive directors at 251 listed units of 57 business groups approved 99.7 percent of the total 6,350 motions forwarded to the boards in 2018. In the case of 46 family-controlled conglomerates, or chaebol, the approval rate was 100 percent, it said.
That explains why people call these independent directors "rubber-stamps." Outside directors are supposed to play the role of keeping large shareholders and top managers in check, as the owner families tend to act in their own interest or make wrong managerial judgments. However, outside directors seemed to raise few objections at board meetings.
This is because chaebol subsidiaries recruit nonexecutive directors mainly as "windshields." For similar reasons, most of these independent directors are former judges, police officers, taxmen and financial regulators. They know too well to voice any opposition; outside directors must not fall out of favor with the tycoons if they want to retain their posts. Sometimes, chaebol owners' classmates or former executives sit in directors' chairs, making it hard to expect to hear different opinions at board meetings.
The time has long past for Corporate Korea to enhance the independence of outside directors. Above all, recommendation committees made up of independent directors should be free from the control of owner families. These panels can seldom select independent directors righteously if group chairmen or executive directors lead them. Policymakers need to work out methods to ensure the independence of outside directors within the boundaries of not hurting the self-reliance of businesses.
Chaebol companies also ought to recognize the positive role of outside directors. They should realize that nonexecutive directors who offer differing views can better help conglomerates and their owners than yes men. Outside directors who apply restraint before problems get worse are precious assets for businesses.
Hanjin Group Chairman Cho Yang-ho lost his title as the CEO of Korean Air, Wednesday. This would not have happened had the group's outside directors not been allowed to fulfill their proper duties.
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