Korean Firms Criticized for Lack of Expertise Among Outside Directors, Overreliance on Academics and Former Bureaucrats (Image supported by ChatGPT)
SEOUL, May 8 (Korea Bizwire) — A new study has raised concerns about the limited diversity and expertise of outside directors at South Korean listed companies, warning that their heavy concentration in academia and the public sector may be undermining corporate governance compared to global standards.
According to a report released Tuesday by the Korea Chamber of Commerce and Industry (KCCI), 50% of outside directors at Korean listed firms in 2024 came from academic (36%) and government (14%) backgrounds. In contrast, only 15% were former corporate executives.
This stands in stark contrast to major markets such as the United States and Japan. Among S&P 500 and Nikkei 225 companies, more than half of outside directors—72% in the U.S. and 52% in Japan—had executive experience, while academics accounted for just 8% and 12%, respectively.
The KCCI attributed the skewed composition in Korea largely to a unique antitrust regulation under the Fair Trade Act, which automatically classifies the personal companies of outside directors as affiliates of a corporate group unless officially exempted. This discourages entrepreneurs and business professionals from taking on outside board roles, especially those with plans to establish their own companies.
Among the 160 outside directors surveyed, 33.1% said they planned to launch a personal business during or after their term, and 37.7% of them intended to resign due to the affiliate designation risk.
“This regulatory quirk doesn’t exist in other advanced economies, which is why we see a higher proportion of business-savvy directors abroad,” the KCCI said in a statement. “A lack of managerial and industry expertise may threaten not only governance quality but also board independence.”
Despite criticism that Korea’s outside directors function as mere “rubber stamps,” 84.4% of respondents said they engage in prior deliberations and discussions on board agenda items, while 55.6% claimed they had expressed conditional approval when concerned about specific issues.
Independence has reportedly improved over time. The proportion of directors with prior ties to the company—through past employment, business relations, or educational networks—fell from 37.5% in 2006 to 16.4% in 2024, according to data from the Center for Economic Reform.
When asked about needed reforms, directors prioritized government-issued guidelines to strengthen director capabilities (45.0%), caution in expanding liability laws (28.8%), and relaxing current antitrust and tenure-related restrictions (26.2%).
Regarding a proposed revision to the Commercial Act to expand directors’ fiduciary duty to include shareholders, 61.9% preferred more flexible approaches such as soft law, self-regulation, or targeted revisions to the Capital Markets Act.
“In today’s volatile global environment, we must see outside directors not merely as monitors, but as strategic partners in decision-making,” said Kang Seok-gu, head of research at the KCCI.
M. H. Lee (mhlee@koreabizwire.com)
