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 shareholder or friends that are company directors.
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, their is more of a risk for 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 breach of his fiduciary duties to the company and its shareholders.
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 transations and breach of fidicuary duties in and the like when they do occur.
What do you think?
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