The members of a Korean board of directors may be listed as either: “inside directors”; “outside directors” or “other directors not directly engaged in the regular business of the company.” In many Korean companies, one of the insider directors is, also, classified as the representative director. The Korean company may also be required to have a statutory auditor.
This director is a director that is responsible for the day-to-day activities of the company. The director is held to similar standards as those imposed on directors in the Western world. However, in Korea, shareholder disputes are often resolved at the prosecutors’ office – not with a civil lawsuit as in the West. The situation is changing in Korea, but often when shareholder disputes occur, the shareholder Korean lawyer will advise filing a criminal complaint against interested directors, shareholders and even customers with alleged ties with a shareholder. This Korean-based law firm, also, often advises to file a criminal complaint, since often the procedure leads to a prompt settlement.
The concept of outside director was adopted with the implementation of the Korean Financial Investment Services and the Capital Markets acts. The Commerical Code of Korea was amended in 2009 and, now, specifically authorizes the utilization of outside directors.
The introduction of outside directors to Korea was intended to add a level of transparency to Korean companies. In reality, the introduction of outside directors, has done little to increase transparency, since these outside directors are normally handpicked by the inside directors, powerful shareholders or the family of the company founder.
The larger listed companies (capital of over KRW 1 billion) must have at least three directors and all listed-companies must have at least 1/4 of their directors as outside directors. Larger listed-companies must have at least three outside directors.
Disqualification of Outside Directors
A Korean Outside Director may be disqualified in Korea if, in short, the Outside Director
- is engaged in the day-to-day business of the Company;
- family is a majority shareholder in the Company;
- is an employee, director or statutory auditor of the majority shareholder;
- is a director, statutory auditor, or employee of the parent or subsidiary of the Company;
- family, employees of the Outside Director are transacting business with the Company;
“Other Director not Directly Engaged in Regular Business of the Company”
The classification is similar to the conception of a “non-standing director.” The obligations imposed on the director are the same as the obligations imposed on inside directors.