Prof. Sang Yop Kang

Tentative Title: Board Composition and Independent Directors in Korea *

After the Asian financial crisis, Korea—where controlling family shareholders dominate large corporate groups (i.e., chaebols)—adopted an independent director system **. In this paper, I will outline the independent director system in Korea, which was adopted mainly for the purpose of curbing (or reducing) tunneling and private benefits in family-controlled corporate groups. I will then explain the general contour and composition of boards in Korea. Subsequently, I will review whether the independent director system in Korea plays positive roles in resolving corporate governance problems. In the context of family-controlled business associations, I will elaborate two distinctive roles of independent directors: the monitoring role and the advisory role. In addition to the criticism of ‘rubber-stamp’ independent directors in Korea, I will analyse whether independent directors in Korea can efficiently regulate egregious business practices through formal and informal processes. I will also explain corporate governance implications in relation to independent directors’ personal backgrounds (e.g. education, hometown, profession, etc.). In addition, I will elaborate on the role of corporations’ committees which recommend independent director candidates. Furthermore, I will analyse whether the legal system in Korea can provide balanced punishment mechanisms against independent directors (e.g. monetary liability or criminal penalty). Another potential topic in this paper is to provide a theoretical approach as to who independent directors should owe fiduciary duty to. Regarding independent director systems, experiences of Korea can provide useful examples and implications to other countries, including China, where family shareholders exercise control over many corporations.

* Please note this is a preliminary abstract – the contents of the paper may change closer to the date of the forum.
** More precisely speaking, what Korea adopted was the ‘outside director system’ rather than the ‘independent director system.’ The difference between the two systems, however, relates to mostly nomenclature issues. Accordingly, scholars and practitioners use these two terms interchangeably.