As South Korea prepares to implement the second amendment to its commercial law on October 10, major domestic corporations have reduced the size of their boards while increasing the number of audit committee members. This shift appears to be a response to the new law's restrictions on the voting rights of major shareholders, aimed at minimizing the required number of independent directors and diluting the proportion of separately elected audit committee members.
On September 8, Leaders Index, a corporate analysis research institute, reported that among the 500 largest companies in South Korea, 332 comparable listed firms had a total of 2,328 registered executives, a decrease of 46 (1.9%) from the previous year. In contrast, the number of independent directors rose slightly from 1,256 to 1,258 during the same period.
The second amendment to the commercial law expands the number of separately elected audit committee members for listed companies with assets exceeding 2 trillion won from one to two and mandates a cumulative voting system when requested by shareholders holding more than 1% of shares.
Following the first amendment, which strengthened the fiduciary duty of directors to shareholders and limited the voting rights of major shareholders to a combined 3%, the exercise of control by major shareholders has become more challenging.
In response, large corporations have reduced the total number of directors to lessen the burden of minimum independent director requirements. For instance, Korea Zinc, currently embroiled in a management dispute, has five out of 19 registered executive positions vacant, leaving 14 in place. LS Electric (from 9 to 5 members) and Celltrion (from 12 to 9 members) have also reduced both the size of their boards and the number of independent directors.
The total number of audit committee members among the surveyed companies increased from 917 last year to 926 this year, a rise of 9 (1.0%). Kyeryong Construction Industry expanded its audit committee from 3 to 5 members, while Nongshim, Daehan Chemical, Daehan Electric Wire, and Meritz Financial Group each added one member.
An increase in audit committee members results in a lower voting proportion for separately elected members within the committee. Two companies, DN Automotive and Daewoong Pharmaceutical, have also established new audit committees.
The number of companies with independent directors serving as board chairs rose from 83 to 91, although this still falls short of 30%. LG Group has shown the most significant change, transitioning all 11 of its major listed companies, including LG Corp and LG Electronics, to an independent director chair system.
There has also been a noticeable shift in the backgrounds of independent directors. The proportion of those from academia decreased from 35.3% to 33.7% (424 members), while those from the business sector increased to 32.0% (402 members) and former bureaucrats to 23.9% (301 members). The gap between the proportions of academic and business sector representatives has narrowed significantly, from 4.0 percentage points last year to 1.7 percentage points this year.
* This article has been translated by AI.
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