Chaebol prefer lawmen, professors as directors

The ranks of independent directors at Korea’s chaebol are dominated by powerful law enforcement agencies and top universities, according to a report released by the Daishin Economic Research Institute on Tuesday.

Three out of ten independent directors at the country’s conglomerates have backgrounds at law enforcement agencies such as the prosecution, Financial Supervisory Service and National Tax Service. The research center’s investigation of corporate governance found that 35.4 percent of independent directors at 111 listed units of the country’s top 30 conglomerates were former officials at the three agencies.

This year’s proportion was up 3.6 percent from 2017, the report noted.

The increasing share indicates that the boardrooms of Korea’s largest companies might lack diversity and independence. Of the top 10 family-controlled conglomerates, 44 out of 132 independent directors are former government officials, according to the report. All of the independent directors of Lotte Group affiliates worked for state-run agencies in the past.

“Companies tend to pick such officials due to the belief that they will help expedite and smooth the administrative process for the business by maximizing their experiences or personal connections with colleagues,” said Daishin Securities researcher Ahn Sang-hee. “But these biased choices can prevent firms from securing the expertise required for effective management in the long run.”

For professors recruited as directors, a handful of the country’s prestigious universities dominate. Of the 54 professors who double as independent directors for the top 30 conglomerates, 66.6 percent of them belong to four universities: Seoul National University, Korea University, Yonsei University and Hanyang University. Seoul National University and Korea University have the most directors, with 13 each.

Korea adopted the independent director system in 1992 to keep chief executives and major shareholders from making unilateral decisions that go against company interests. Despite the goal of the system, independent directors face criticism for serving as rubber stamps for decisions made by big companies.

BY PARK EUN-JEE, YONHAP [park.eunjee@joongang.co.kr]