[Exclusive] 99.7% Approval Rate: Major Conglomerates Mock Commercial Act Reform with 'Independent Directors' [Outside Directors on the Test Bench] ①

Survey of Board Agendas at 100 Listed Affiliates of Top Conglomerates
Only 8 out of 2,929 Items Were Rejected or Deferred Due to Dissent
Dissent Remains Rare: "Controversial Items Are Simply Not Submitted"
"Even With Outside Directors as Bo

Editor's Note
With the amendment of the Commercial Act, outside directors have now been given the new title of "independent directors." Companies are transferring the role of board chair—traditionally held by controlling shareholders—to outside directors, and financial holding companies are also emphasizing the strengthening of board independence. However, simply changing names and formalities does not guarantee that checks and balances will function as intended. In the boards of major conglomerates, dissenting opinions from outside directors remain rare, and boards at financial holding companies are still subject to criticism for merely rubber-stamping decisions made by the CEO. For outside directors to achieve true independence, structural changes are needed, including diversifying nomination pathways, granting them substantial authority, improving evaluation and disclosure systems, and strengthening legal accountability. This article examines the current state of board operations in the industrial and financial sectors and explores the tasks ahead for the outside director system to become a substantive mechanism for checks and balances, rather than a mere formality.

Although the amendment to the Commercial Act has increased the responsibilities of company boards, there are ongoing concerns that the oversight function of outside directors (now independent directors under the revised law) at major conglomerates remains limited. Analysis shows that over 99% of board agenda items at domestic leading conglomerates pass as originally proposed, suggesting that outside directors serve more to legitimize management decisions rather than act as independent monitors. While companies are strengthening independence by appointing outside directors as board chairs, there are also moves to amend articles of incorporation to defend management rights, essentially undermining the intended effects of the legislation.

On June 14, The Asia Business Daily conducted a comprehensive review of the approval and opposition rates for outside director board agenda items, as disclosed on the electronic disclosure system, for the top 10 listed companies in the Fair Trade Commission’s designated business groups and 100 affiliates, including subsidiaries. Out of a total of 2,929 agenda items, only eight cases—less than 0.3%—were rejected or deferred as a result of opposition or withheld votes.

The findings reveal that dissenting opinions remain exceedingly rare relative to the total number of agenda items. In fact, only 22 opposing votes and 14 abstentions were recorded during actual board meetings. As a result, the approval rate for all agenda items reached 99.73% (2,921 items). This indicates that boards of domestic conglomerates are still operated primarily by controlling shareholders and internal directors, with the independent oversight function of outside directors far from fully realized.

The outside director system in Korean companies has long been plagued by criticism of being a "rubber stamp." While outside directors are supposed to act as independent board members who monitor and check management, in reality, the nomination process is heavily influenced by the management, thus undermining independence. As a result, it is rare for outside directors to voice dissenting opinions or request revisions to major management decisions, and boards have functioned as bodies that simply follow management’s lead.

"Opposition to Robot Stake Acquisition and U.S. LNG Participation"... Disappearing Dissenting Votes

There were virtually no cases where a sole opposing vote from an outside director reversed a board decision. In most instances where opposition or abstention led to rejection, it was because the internal directors or controlling shareholders shared the same opinion. Among the 15 board agenda items last year that received either a dissenting or deferred vote, seven items were still approved despite objections from outside directors. Reasons for opposition included: ▲ uncertainty of business synergy (SK Networks), ▲ approval of equity acquisition and business transfer related to robotics (LG Electronics), ▲ approval of financial statements and business reports (LG HS Ad), and ▲ participation in the Alaska LNG (liquefied natural gas) project SPV in the United States (POSCO International).

For example, during LG Electronics' decision last January to acquire management control of the autonomous robot company Bear Robotics, one outside director voiced concerns, stating, "The business synergy is weak, and from the perspective of strengthening future-oriented business and workforce reallocation, a more cautious review is necessary." Nevertheless, the proposal was passed with the support of the other six internal and external directors. Similarly, POSCO International received one opposing vote regarding participation in the Alaska LNG project promoted by the United States, but the agenda item was still approved.

Although there were skeptical opinions regarding business suitability and profitability, these minority views failed to influence the final decision. Under the Commercial Act, board agenda items are decided by a majority of directors present, with approval by a majority of those present, meaning it is difficult for opposition from just one or two outside directors to overturn the outcome. However, there were nine cases in which outside directors' opinions led to modifications and subsequent approval of agenda items. Last year at POSCO Holdings, four items—including revisions to the internal accounting management regulations and improvements to company performance evaluation and executive compensation—were amended based on directors’ modification suggestions.

On the other hand, there were a few cases where outside directors' opposition meaningfully influenced board decisions, resulting in items being deferred or rejected. Of the 15 cases, eight were actually deferred or rejected, but a closer look reveals that in most cases, the internal directors or controlling shareholders had already agreed with the outside directors in advance. For instance, at Hugel, all internal and outside directors opposed the granting of stock options, resulting in rejection. SK also had two agenda items rejected due to unanimous opposition from outside directors, but in both cases, their stance was aligned with that of the controlling shareholder's internal directors. Ultimately, this demonstrates the limitation that for the opposition of outside directors to be effective, it must coincide with the will of the controlling shareholder.

Since the mid-to-late 2000s, subcommittees have become more active in the industrial sector, but their actual influence remains limited. These include: ▲ evaluation and compensation committee, ▲ ESG committee, ▲ internal control committee, ▲ outside director nomination committee, ▲ finance committee, ▲ audit committee, and ▲ chairman candidate management committee. Outside directors serve as a buffer by discussing key agenda items at these subcommittees before board meetings. However, there were only six cases where subcommittee-level opinions led to the deferral or amendment of agenda items.

An expert in corporate governance noted, "If a committee is established, it should be given real authority, but in reality, it hardly serves the purpose of dispersing power or enhancing expertise. In the case of the outside director nomination committee, 99% of the time, insiders close to the company owner are pre-selected." He added, "While the audit committee has become established because director liability is clearly defined and significant in cases of accounting fraud, the outside director nomination and compensation committees have not taken root because there is no immediate accountability for their actions."

Evasion Tactics in Response to Commercial Act Amendment... Boards Remain Unchanged

The core of last year's Commercial Act amendment, which passed the National Assembly plenary session, is strengthening shareholders’ rights in corporate management. To this end, the term "outside director" was replaced with "independent director," and the mandatory appointment ratio was increased to at least one-third. In addition, the 3% rule was applied to limit the voting rights of the largest shareholder during the appointment or dismissal of audit committee members, and the number of audit committee directors required to be separately elected was increased from one to two. Listed companies with total assets of 2 trillion won or more must now implement cumulative voting if requested by shareholders holding at least 1% of shares.

As the enhancement of shareholder value became a major topic, companies began appointing external figures as board chairs to promote independence. This year, LG Group installed an outside director as board chair at 11 major listed companies, including LG Corp. Koo Kwang-mo, who had served as LG Group’s board chair, stepped down from the post after eight years. Last year, SK Inc., the holding company of SK Group, appointed Sunhee Kim (Vice Chair and CEO of Maeil Dairies) as board chair, and Kakao appointed Chunseung Ham, President of PH&Company, to the same position.

However, there is skepticism in the business community that such changes will yield meaningful improvements. Even if outside directors are appointed as board chairs, management can still exert influence over candidate selection and agenda formation, and the position itself does not guarantee independent oversight authority.

Another expert commented, "At Company A, the composition of outside directors is more about filling quotas—for example, appointing one law professor, one accounting professor, and so on—rather than selecting individuals suited to the unique characteristics of each company. Due to these outdated governance structures, competitiveness is being lost." In contrast, regarding Company B, he noted, "At least their board members are first consulted and coordinated with."

Even the amendment to the Commercial Act is seen as insufficient to address such structural issues. In fact, before the amendment took effect, major companies sought the help of law firms to revise their articles of incorporation and defend management rights. Prior to the mandatory cumulative voting system coming into effect this September, some companies preemptively reduced the number of directors or extended the terms or staggered the retirement dates of current directors to avoid having to appoint new ones.

Hanwha Group extended the term for outside directors to three years across 11 major affiliates. Hyosung Heavy Industries also attempted to reduce the number of directors, but this was blocked by opposition from the National Pension Service. Furthermore, the clause on fiduciary duty to shareholders is criticized for being merely declarative, lacking any detailed provisions for accountability, and being unenforceable through litigation.

An outside director at a major conglomerate said, "Simply replacing the board chair with an external figure instead of the controlling shareholder is unlikely to bring significant change. In many cases, companies simply avoid submitting agenda items that are likely to be rejected." He added, "It seems necessary to systematize mechanisms for outside directors to participate in pre-review of agenda items at the subcommittee level."

This content was produced with the assistance of AI translation services.