[비즈한국] With the enforcement of the Commercial Act amendment this July, attention has focused on whether the responsibilities of independent directors (formerly outside directors) would be strengthened. Previously, there was significant criticism that independent directors acted as “rubber stamps,” consistently voting in favor of agenda items proposed by the controlling shareholder or the existing board. In response, Bizhankook examined over 1,000 board meeting records from the top 50 companies by KOSPI market capitalization as of June 30 to see if there were any cases where independent directors opposed the controlling shareholder's opinions. To conclude, such instances were extremely rare.
Of the 50 companies, it was confirmed that independent directors cast dissenting votes on board agenda items at only three: Shinhan Financial Group, Korea Electric Power Corporation (KEPCO), and Korea Zinc. A common feature of these companies is that they either lack individual owners or are currently experiencing management disputes. In other words, it is difficult to find cases where independent directors opposed agenda items in companies with an owner.
Yang In-jip, an independent director at Shinhan Financial Group, expressed a dissenting opinion on the “Approval of Director Remuneration” at an extraordinary board meeting this March. Aside from him, the other 10 directors voted in favor, and the agenda was passed. Yang is a former president of HiteJinro and currently serves as the CEO of Unicom.
KEPCO held a board meeting this May and resolved to “amend the basic supply terms and conditions.” The main content was to strengthen consumer choice by establishing an optional rate that applies a seasonal single unit price for general-use (Type II) customers. They also announced that, temporarily, they would apply the lower of the newly established rate or the existing rate for general-use (Type II) customers. The purpose was to ease the burden on small business owners and improve acceptance of the hourly rate system reorganization.
Three independent directors—Lee Heung-ryul, Hwang Jung-hwa, and Song Jae-do—opposed the amendment to the basic supply terms. The agenda was passed with 4 votes in favor, 3 against, and 1 abstention. However, there are not many instances where three dissenting votes are cast on a specific agenda in a board meeting. The independent directors who expressed opposition at the time were concerned that if the motion were passed without phased discussions, it could cause confusion in the field, and that applying an exceptional rate system only to certain industries could set a negative precedent.
Records show that multiple directors at Korea Zinc have opposed several board agenda items. However, Korea Zinc is currently embroiled in a management dispute between the family of Young Poong advisor Jang Hyung-jin and the family of Korea Zinc Chairman Choi Yun-beom. Therefore, it is not unusual for independent directors recommended by advisor Jang’s side to stand in opposition to Chairman Choi Yun-beom’s side.
Except for these cases where there is no owner or a management dispute is underway, it was difficult to find cases among the top 50 KOSPI companies where independent directors opposed board agendas. Under the Commercial Act, an independent director is defined as “a director who performs functions independent of internal directors, executive officers, and persons who instruct the execution of business.” In other words, they are meant to perform their duties independently from management or controlling shareholders and play a role in monitoring and checking management for the benefit of shareholders. In reality, however, there have been few cases where independent directors have checked management in the boardroom.
In the business community, opinions suggest there are limitations to the independent director system. A business official stated, “The appointment of independent directors itself is handled by the existing board, so they will naturally try to appoint individuals who share their views,” adding, “From the perspective of an independent director, there is no reason to stand against the existing board, which has the power of appointment, unless there is a special issue. If a company lacks an owner, there is a possibility that independent directors could be replaced after a change in leadership, but if there is an owner, independent directors must stay in the management's good graces to ensure their reappointment.”
These issues have been consistently raised in the past. The Commercial Act amendment, which took effect in July, was intended to strengthen the independence and authority of independent directors by changing the name of outside directors of listed companies to “independent directors” (while non-listed companies remain “outside directors”) and increasing the ratio of independent directors within the board from at least one-fourth to at least one-third. However, critics point out that it is difficult to change fundamental problems through the amendment because the influence of controlling shareholders on the appointment of independent directors remains absolute.
Nevertheless, the government seems to have high expectations for the Commercial Act amendment. When the amendment was enacted, Minister of Justice Jung Sung-ho stated, “I hope the revised Commercial Act serves as an important turning point in increasing the transparency and accountability of corporate governance,” and added, “We will continue to work hard to protect shareholder rights and interests and ensure that companies can grow sustainably.”