Ethical Performance
inside intelligence for responsible business


Big business criticised for hiring officials as non execs in S Korea

April 2014

Four in 10 outside directors appointed by South Korea’s 10 leading business groups are former top policymakers, such as cabinet ministers, presidential officials, and heads of the tax agency, the antitrust commission, the financial regulator, or public prosecutors, according a Korean online research company.

The groups, or “chaebol,” are criticized for employing former officials as lobbyists to take advantage of their ties to the government and the legislature. The chaebol are family controlled corporations. Most years, family members who are also senior corporate executives are convicted of embezzlement, misuse of corporate funds, bribery, or other white-collar crimes.

Critics point out that the outside director system adopted to check chaebol owners’ abuse of power is being misused to cement collusive ties between politics and big business.

 “As tax offices and other government agencies are strengthening the inspection and regulation of chaebol, it seems that more are appointing former officials to use their links to the authorities,” said a representative.
 According to a researcher at the Centre for Good Corporate Governance, the true role of such directors is to work as lobbyists when the chaebol face problems.

The Strategy and Finance Ministry has said it will disqualify people with no proven record of accomplishment in related fields from taking up such positions.

Samsung Life Insurance, SK Gas, SK Telecom, and LG International are all examples of companies appointing former government ministers as outside directors.

According to industry data, the number of outside directors newly hired during the first half of 2013 was 77 from 330 outside directors, at 93 companies. Of those, 29, or 37.7 percent, were former government officials, retired judges, prosecutors, or senior policymakers.

Critics say that such outside directors are likely to fail in their duty of providing neutral opinions on corporate management or preventing mismanagement.

 “It is impossible for these outside directors, such as owners’ friends, to maintain independence in the decision-making process,” said an attorney at the Centre for Good Corporate Governance. “Biased outside directors need to be replaced.”

There has long been scepticism about outside directors fulfilling their intended purpose of independent and unbiased monitoring of corporate governance. Civic groups have long charged that the system is being abused as high-paying post-retirement courtesy for government figures and to bolster corporate owners’ position by bringing in allies.

Regulator data showed that in some cases, the outside directors represented a possible conflict of interest.


Asia | Corporate governance

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