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The upcoming amendment to the Commercial Act includes provisions that mandate converting the status of current outside directors to independent directors and expanding their required numbers. These changes aim to strengthen the independence and accountability of the Board of Directors. The intent of this amendment is to establish a foundation allowing Outside Directors, who have often been criticized as rubber stamps for management, to voice necessary checks and supervision.
However, there is growing concern among businesses that confusion may erupt in practice due to either the difficulty in finding suitably qualified candidates possessing both independence and expertise or the failure to establish corporate-specific strategies. Alongside this, there is criticism that specific measures must be put in place to ensure substantive independence, beyond merely changing the name.
The amendment to the Commercial Act recently resolved by the Cabinet meeting includes provisions that mandate changing the status of current outside directors to independent directors and expanding the required appointment ratio from the current one-quarter to one-third of all directors. Independent directors are defined as those who perform supervisory functions while being independent from inside directors, executive officers, and persons who instruct the performance of duties.
As a result, a higher degree of independence is expected of independent directors compared to traditional outside directors , and this shift is expected to bring changes in corporate management environment, which was often heavily influenced by executives.
However, if this reform remains limited to changing names and expanding numbers, it will be difficult to achieve its intended effects. A primary challenge is finding appropriate candidates for the independent director position. Attorney Jiho Kim of LIN LLC highlighted the practical challenges, saying:
“If multiple companies simultaneously increase their independent directors to meet the one-third requirement, it may become difficult to find qualified individuals who meet the required qualifications in the relevant industries. As director liability is strengthened, there is also a possibility that candidates may avoid the independent director position.”
Attorney Kim emphasized the importance of securing independent director candidates through various channels.
“We need to actively consider external expert recommendations, shareholder nominations, and other pathways,” she said, adding, “It is expected that a wider range of nomination sources will contribute to securing qualified independent directors.”
She also noted:
“This reform, if implemented well, could enhance corporate credibility externally and contribute to strengthening Korea’s international competitiveness in corporate governance and expand foreign institutional investment in Korean firms, as the concept of independent directors emphasized in the corporate governance frameworks of developed countries is adopted.”
For more details, refer to the original article at:
https://www.bloter.net/news/articleView.html?idxno=640586
However, there is growing concern among businesses that confusion may erupt in practice due to either the difficulty in finding suitably qualified candidates possessing both independence and expertise or the failure to establish corporate-specific strategies. Alongside this, there is criticism that specific measures must be put in place to ensure substantive independence, beyond merely changing the name.
The amendment to the Commercial Act recently resolved by the Cabinet meeting includes provisions that mandate changing the status of current outside directors to independent directors and expanding the required appointment ratio from the current one-quarter to one-third of all directors. Independent directors are defined as those who perform supervisory functions while being independent from inside directors, executive officers, and persons who instruct the performance of duties.
As a result, a higher degree of independence is expected of independent directors compared to traditional outside directors , and this shift is expected to bring changes in corporate management environment, which was often heavily influenced by executives.
However, if this reform remains limited to changing names and expanding numbers, it will be difficult to achieve its intended effects. A primary challenge is finding appropriate candidates for the independent director position. Attorney Jiho Kim of LIN LLC highlighted the practical challenges, saying:
“If multiple companies simultaneously increase their independent directors to meet the one-third requirement, it may become difficult to find qualified individuals who meet the required qualifications in the relevant industries. As director liability is strengthened, there is also a possibility that candidates may avoid the independent director position.”
Attorney Kim emphasized the importance of securing independent director candidates through various channels.
“We need to actively consider external expert recommendations, shareholder nominations, and other pathways,” she said, adding, “It is expected that a wider range of nomination sources will contribute to securing qualified independent directors.”
She also noted:
“This reform, if implemented well, could enhance corporate credibility externally and contribute to strengthening Korea’s international competitiveness in corporate governance and expand foreign institutional investment in Korean firms, as the concept of independent directors emphasized in the corporate governance frameworks of developed countries is adopted.”
For more details, refer to the original article at:
https://www.bloter.net/news/articleView.html?idxno=640586