[Aftermath of the Commercial Act Amendment] From outside director to independent director… ‘Well,’ to take off the ‘Geosugi’ label.

We examine the impact of the Commercial Act amendments on corporate management.

There is an assessment that the independence and responsibility of the board of directors will be strengthened as the amendment to the Commercial Act includes the conversion of outside directors to independent directors and expansion of their size. In fact, the purpose is to lay the foundation for outside directors, who have been criticized as a show-off by management, to raise their voice for checks and surveillance through the amendment.

However, in the legal world, there are concerns that it may be difficult to find the right person with independence and expertise, or that confusion may arise in the field due to the lack of a company-specific strategy, and it is pointed out that specific measures must be prepared to secure actual independence beyond name changes.

The commercial law amendment bill recently passed at the Cabinet meeting contains provisions to change the name of existing outside directors to independent directors and expand the ratio of mandatory appointment from one-fourth of the total number of directors to one-third. An independent director is defined as an 'outside director who performs functions independent of internal directors, executive officers, and business execution directives.'

Accordingly, it is expected that independent directors will be required to have higher independence than existing outside directors. Changes in the existing management environment, which was greatly influenced by management, are also expected. Seok-Hyeon Yoo, an attorney at the law firm Mission, said, “We will be able to increase the check on the company’s management.”

Seunggyu Byun, an attorney at law firm Seum, predicted, "In particular, in line with the main content of the Commercial Act Amendment Bill, which requires directors to directly bear a duty of loyalty to shareholders, when independent directors make decisions for majority shareholders, the possibility of making decisions that take into account the interests of all shareholders will increase, considering the possibility of being sued by minority shareholders even if it is against the interests of majority shareholders."

Securing independent director candidates and preparing customized strategies for each company

However, it may be difficult to achieve the practical effect of the amendment simply by changing the name to independent director and expanding its size. First, there is the problem of finding appropriate independent director candidates. Kim Ji-ho, a lawyer at Lin Law Firm (Lihan), said, "If several companies increase the number of independent directors at once to meet the one-third appointment ratio requirement, it may become difficult to find suitable people who meet the qualifications for the relevant industry, and as the responsibility of directors becomes stronger, there is also a possibility that candidates will avoid independent director positions."

To prevent this situation, a system for discovering and managing independent director candidates in advance must be systematized. Attorney Yoo explained, “The appointment of new independent directors must be prepared in advance to prevent a situation where there is a shortage of candidates just before implementation.”

Dong-Han Lim, an attorney at Dongin Law Firm, emphasized, “We must make efforts to increase the reliability of independent director appointments through an objective and professional director recommendation process and establish an efficient decision-making system.”

Shin Jong-soo, an attorney at Daeryun Law Firm, said, "The selection process and qualification requirements must be strengthened to ensure the actual independence of independent directors. In line with the trend of strengthening the requirements for independent directors, the candidate recommendation committee system must be practically operated and the independence verification process must be objective."

In particular, he advised receiving candidate recommendations through multiple channels. Attorney Kim said, “There is a need to actively consider recommendations from external experts and shareholders,” and added, “In the case of independent directors who are recommended and appointed through various channels, it is expected that they will be able to contribute to securing independence.”

In addition, a careful approach is needed depending on the circumstances of each company. Attorney Shin said, "The impact of the amendments to the Commercial Act will vary depending on each company, whether it is a listed or large-scale listed company, the distribution of shareholders' shareholdings, the composition of the existing board of directors and outside directors, and transactions with affiliated companies with different controlling shareholder shareholdings. We must carefully review and respond to the revisions according to the company's circumstances."

In addition, Attorney Byun said, "Since there is no explicit or specific provision regarding the effect of changing the name of an outside director of a listed company to an independent director, it is necessary to look at future practice and accumulation of precedents, revision of the Enforcement Decree of the Commercial Act, etc. to see what impact this revision to the Commercial Act will have on actual corporate management."

If these improvements are made, it is expected that it will ultimately have a positive impact on the capital market. Attorney Lim pointed out, “The change to the independent director system will send a positive signal to global investors about the improvement of the governance structure of Korean companies and will have a positive impact on resolving the Korea discount, which has been a chronic problem.”

Attorney Kim said, "By increasing trust in companies externally and introducing the concept of independent directors, which is emphasized in corporate governance in developed countries, it can contribute to strengthening the international competitiveness of Korean companies and also contribute to increasing the proportion of foreign institutional investors in Korea."

Reporter Park Seon-woo (closely@bloter.net)

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[Aftermath of the Commercial Act Amendment] From outside director to independent director... ‘Well’ (shortcut)