The Korea Times published an interesting article that all of us at local law firms in Korea know very well. Korean listed companies love to hire lawyers as outside directors. Many of these companies know that these lawyers will make very little noise when it comes to board action or inaction because of the often strong financial relationship between the firm and the company. Additionally, many of these lawyers are hired by majority shareholders or friends who are company directors to add more perception that the Korean company is well managed.
The Korea Times article notes that:
According to the report by Chaebol.com, of the 454 outside directors hired by the top 100 listed companies in the country, 76, or 16.7 percent, are lawyers or advisers for local legal firms . . . The Financial Supervisory Service, meanwhile, said it has no authority to regulate outside directors hired by companies, while the Justice Ministry said it could slap fines on violators for hiring lawyers, although no such action has ever been taken in the past.
Other loopholes that make it hard for authorities to crack down on such practices is the fact that legal services companies do not technically hire so-called advisers of law firms directly.
“There are even claims that advisers should not be barred from working as outside directors,” a government official said.
In terms of resolving this issue, Kim Woo-chan, professor at the state-run Korea Development Institute, said there is a need to change the country’s fair trade law so no conflict of interest can occur.
Because of tight Korean social networks, there is more of a risk of an outside director neglecting his duties than in most Western nations. Additionally, in all but the most flagrant of cases, the outside director will never be prosecuted, fined, or have to give up a dime of his director pay for a breach of his fiduciary duties to the Korean company.
I suspect that the best solution is drafting a law that specifically addresses this issue. It is also interesting to note that many Korean National Assembly members work for law firms – including at my Firm.
The concept of conflict of interest is vastly different in Korea than in the West and much of developed Asia.
It seems the issue, in Korea, is not as much the impression of a conflict, but finding and adequately punishing conflicts, interested transactions, and breach of fidicuary duties in and the like when they do occur.
What do you think?
Sean Hayes is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw, and IPG Legal is consistently ranked Top Dispute Resolution Law for our litigation services.
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