Tenure of Outside Directors in Korean Large Corporations Half That of Advanced Countries... "Cannot Build Expertise"

KCCI, Report on International Comparison and Implications of Outside Director Management Status
"Apple, No.1 by Market Cap in the US, Has 8 Outside Directors with an Average Tenure of 9.5 Years"
Two-Year Tenure Limit Implemented... Hinders Accumulation of Outside Director Expertise

[Asia Economy Reporter Choi Dae-yeol] The average tenure of outside directors at major companies in South Korea is about two and a half years, roughly half that of advanced markets such as the United States. This is attributed to regulations that limit the length of service, which is criticized for undermining the expertise of the board of directors, the company's key decision-making body.

According to a comparison by the Korea Employers Federation of the average tenure of outside directors at the top 10 companies by market capitalization in South Korea, the United States, Japan, Germany, and the United Kingdom, South Korea's average tenure was 2.5 years. The United States had the longest average tenure at 7.5 years, followed by Germany at 5.1 years and the United Kingdom at 3.6 years, all longer than South Korea. Japan, which has a corporate culture similar to South Korea, had an average tenure of 3.1 years. The average tenure in the four countries excluding South Korea was 5.1 years.

South Korea implemented an amended Enforcement Decree of the Commercial Act in January 2020 that limits the tenure of outside directors, marking two years this year. According to the amendment, outside directors can serve for a maximum of six years. Before the amendment took effect in 2019, the average tenure was 3.8 years but has since decreased. The proportion of outside directors serving more than six years in South Korea was notably low at 4.2%. In contrast, the United States had about half (47.9%) of outside directors serving more than six years, and even Japan, the lowest among the four countries, had 9.6%. Outside directors appointed before the amendment in South Korea are guaranteed the remaining term up to six years and are replaced thereafter.

Arthur Levinson, an outside director at Apple, the top market cap company in the United States, has served for 21 years. The average tenure of the eight outside directors at Apple was 9.5 years. In the United Kingdom, the corporate governance code, rather than law, sets the appropriate tenure for outside directors at nine years. Exceptions beyond this period are allowed if justified.

The backgrounds of outside directors also showed differences between South Korea and other advanced countries. While most outside directors in other countries were former CEOs or executives, South Korea had a higher proportion of academics such as professors. In the United Kingdom and the United States, over 80% of outside directors were business executives, whereas in South Korea, this figure was about 17%. Academics accounted for approximately 47.9% of outside directors in South Korea.

An analysis of the top and bottom 40 companies listed on the Korea Stock Exchange showed that the average tenure of outside directors was longer in lower-ranked companies than in top-tier companies, due to the presence of long-serving outside directors. The Korea Employers Federation analyzed that regulations limiting tenure had a greater impact on small and medium-sized enterprises. There are calls to improve the system to allow more autonomous operation of corporate boards, including tenure. Sangwoo Ha, head of the Economic Research Department at the Korea Employers Federation, said, "The uniform limitation on outside directors' tenure will lead to frequent replacement, hindering the accumulation of expertise. Given the limited pool of outside directors, this will especially increase the burden of appointing new outside directors for small and medium-sized enterprises."

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