Sam-il PwC "Communication Between Boards and Shareholders of Domestic Listed Companies at Half the Level of the US"

Governance Center Report on Survey of Outside Directors in Listed Companies
"Less than Half Possess Digital Competence... Effectiveness of Board Evaluations Must Be Enhanced"

It has been identified that 8 out of 10 publicly listed companies in South Korea have had no cases in the past year where board members, excluding executives, directly communicated with general shareholders. Since the main reason cited was the lack of shareholder requests (89%), there are calls for raising awareness to encourage more proactive communication.

On the 2nd, the Samil PwC Governance Center announced the publication of an "Outside Director Survey Analysis Report" containing these findings. The survey was conducted in May targeting a total of 83 outside directors currently serving at domestic listed companies to assess perceptions across various areas including board composition, operation, evaluation, and Environmental, Social, and Governance (ESG) management.

According to the report, the average experience of communication with general shareholders was 22%, with higher rates observed in companies with larger asset sizes (36% for companies with assets over 2 trillion KRW, 9% for those under 2 trillion KRW). This level falls short of even half of the active communication seen in the United States. A survey conducted last year by PwC US targeting directors of major listed companies showed that 54% of board members, excluding CEOs, had communicated with general shareholders, and 87% of those responses indicated that discussions with shareholders were productive.

82% of respondents stated that diversity in board composition provides new perspectives and enhances operational effectiveness. On the other hand, capabilities in information technology (IT), digital, and cyber risk management were identified as the most lacking areas. While 82% of respondents considered these capabilities very important, only 45% answered that they possessed them 'sufficiently' or 'to some extent.'

Regarding board evaluation, 61% of respondents said that board evaluations are being conducted. However, only 39% reported having effective evaluation procedures. Additionally, 26% responded that 'no action is taken' based on evaluation results, highlighting the need to improve the effectiveness of board evaluations. The proportion of evaluations conducted by independent internal organizations separate from external professional bodies or management was also very low, at 6% and 8% respectively.

Among board committees, the Audit Committee (88%) and Outside Director Candidate Recommendation Committee (65%) were the most commonly established. The ESG Committee was present in 45% of cases. Conversely, despite the importance of internal transactions given the characteristics of domestic corporate groups, only 21% reported having an Internal Transactions Committee, and just 8% felt that establishing one was necessary.

ESG issues have become a major agenda item for boards. 57% of respondents said ESG is included in the board’s regular agenda, and 52% stated that ESG factors are linked to company strategy. There was a clear difference in outside directors’ perceptions of ESG oversight depending on company size. 51% of companies with assets over 2 trillion KRW responded that their boards are preparing for mandatory ESG disclosures, whereas only 18% of companies under 2 trillion KRW said the same.

Only 35% of respondents said that meetings exclusively for outside directors, recommended to strengthen cooperation among them, are held. 42% responded that the separation of the board chair and CEO, considered a measure to enhance board independence, has been implemented. According to information disclosed last year, the proportion of large listed companies separating the CEO and board chair was 34%, lower than the survey results. In the United States, more than half of board chairs are outside directors. The report stated, “While having the CEO also serve as board chair can improve operational efficiency, it may weaken the board’s supervisory function over management. If separation is difficult, it is recommended to appoint a lead outside director to gather outside directors’ opinions and check the CEO’s authority.”

Jang On-gyun, head of the Samil PwC Governance Center, said, “This report focused on clearly understanding the current state of boards and finding improvement measures. Going forward, we will continue to conduct annual outside director surveys to track yearly trends and changes, providing meaningful analysis to contribute to the improvement of corporate governance in Korean companies.”

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