Term Limits for Executive Directors as Shackles... Business Community Protests Management Rights Infringement

Business Community "Labor Pool Shortage, Increase in Non-Experts"
"Term Limits Expand Management Uncertainty"
Mid-sized & Small Firms "Even Director Appointments Are Difficult"

Minister of Justice Choo Mi-ae is entering the Supreme Court's main meeting room in Seocho-dong, Seoul, on the afternoon of the 9th to meet Chief Justice Kim Myeong-su. Photo by Kang Jin-hyeong aymsdream@

[Asia Economy Reporter Dongwoo Lee] The Ministry of Justice has expressed its intention to push forward with the amendment to the Commercial Act Enforcement Decree next month, despite having decided to postpone it for one year, prompting backlash from the business community who view it as excessive interference in management rights.

The business community argues that provisions such as the '6-year term limit for outside directors' included in this amendment undermine management independence. They also expressed concerns that it will be difficult to replace outside directors subject to term limits at the upcoming March shareholders' meetings, and that the restriction on the professional talent pool could lead to the mass recruitment of less qualified personnel.

On the 15th, the business community and major domestic economic organizations collectively claimed that if this amendment to the Commercial Act is enforced, management uncertainty will increase due to the participation of unverified personnel in management.

Yoo Jung-joo, head of the Corporate Innovation Team at the Federation of Korean Industries, pointed out, “The biggest problem with the term limit for outside directors is the small talent pool.” Yoo said, “Currently, more than half of outside directors in domestic companies come from bureaucratic or academic backgrounds. The purpose of the outside director system is for experts who know the company well to play a monitoring role in management, but with term limits reducing the talent pool, many non-experts could be recruited.”

The Korea Employers Federation also argued that the term limit for outside directors could instead become a factor of instability in management rights. A representative from the federation said, “If the qualifications for outside directors are strengthened, in a situation where the talent pool is limited, unverified directors may be appointed, increasing instability in corporate management rights. This could stifle corporate activities and negatively affect investment activation.”

There were also claims that the amendment could seriously infringe on the autonomy of corporate management.

Kim Hyun-soo, head of the Corporate Policy Team at the Korea Chamber of Commerce and Industry, stated, “Outside directors provide opinions from the perspective of third parties in various fields and decide autonomously according to the company's situation. Setting a uniform term limit could infringe on this autonomy.”

Professor Jang Young-soo of Korea University Law School said, “It is appropriate to view the state's limitation of outside directors' terms as a restriction on management rights. If the purpose of the amendment is to restrict inappropriate outside directors and strengthen independence, then inappropriate directors should be controlled accordingly. Limiting the term is difficult to see as reasonable.”

Relatively smaller mid-sized and small enterprises also voiced complaints regarding the appointment of outside directors whose terms are ending, compared to large corporations.

A representative from a mid-sized company lamented, “According to the enforcement decree, we have to change outside directors early this year, but there is no one available. Large companies have many people who want to become outside directors, but it is difficult for small and mid-sized companies to recruit outside directors.”

Meanwhile, newly appointed Minister of Justice Choo Mi-ae recently submitted the amendment to the Commercial Act Enforcement Decree to the Office for Government Policy Coordination, which reportedly completed its review on the 10th. The amendment includes provisions restricting outside directors who have served more than six years at a listed company or more than nine years including their tenure at affiliated companies. The amendment is expected to be promulgated and enforced next month after deliberations at the vice-ministerial meeting and the Cabinet meeting.

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