"Family Owners Enjoy Authority Without Responsibility... Outside Directors Remain Mere Rubber Stamps"

[Asia Economy Reporter Eunju Lee] Institutional measures to check the management of large business groups have been continuously strengthened, but in terms of actual operation, the control over the controlling family remains insufficient. Most board agenda items attended by outside directors were approved as originally proposed, and the controlling family continued to serve as unregistered executives who do not participate in board activities, exercising authority without responsibility.

On the 27th, the Fair Trade Commission disclosed the "2022 Governance Status of Publicly Disclosed Business Groups." Among the 76 publicly disclosed business groups designated this year, excluding 8 newly designated groups and Nonghyup, a group established under a special law by the same person, the management participation status of 67 publicly disclosed business groups, as well as the composition and operation status of their boards and the operation status of minority shareholder rights, were revealed. The survey period was from May 1, 2021, to April 30, 2022.

Institutional measures such as outside directors and internal committees to check controlling shareholders or management have been strengthened. Among the directors of 288 listed companies belonging to 67 large business groups, the ratio of outside directors exceeded half at 51.7%, and the attendance rate of outside directors at board meetings during the analysis period was 97.8%. However, out of 8,027 board agenda items, only 55 items (0.69%) were not approved as originally proposed due to opposition from outside directors, showing no significant check-and-balance power. Also, although the installation rate of committees within the boards of listed companies belonging to the analyzed business groups increased compared to the previous year, only 27 agenda items (0.83%) were not approved as originally proposed in committees over the past year.

The phenomenon of the controlling family concentrating on companies subject to self-dealing regulations and exercising authority without responsibility persisted. Among 2,394 companies belonging to 58 large business groups with controlling families, there were a total of 178 cases where the controlling family served as unregistered executives who did not participate in board activities (counted multiple times if an executive served in multiple companies), an increase of 2 cases from the previous year. In particular, unregistered executives from the controlling family were concentrated in companies subject to self-dealing regulations (companies where the controlling family holds 20% or more of shares). Hite Jinro had the highest proportion at 46.7% (7 out of 15 affiliated companies had controlling family unregistered executives), followed by Eugene at 20.0%. Next were Jungheung Construction at 18.2%, Kumho Petrochemical at 15.4%, and Janggeum Shipping at 14.3%.

The controlling family was also concentrated as directors in public interest corporations holding affiliate stocks. The Fair Trade Commission plans to conduct a field survey next year to check compliance with voting rights restrictions, as it views that public interest corporations may be used for strengthening de facto control through loopholes rather than their original social contribution activities. The Fair Trade Commission stated, "While institutional measures are steadily being established, there are still shortcomings in effectively checking controlling shareholders or management in terms of actual operation."

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