Will KT's Governance Change? The Key Is Escaping the 'Outside Director Corporation' Model

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KT has embarked on a full-scale restructuring starting this month. The beginning of this process is the composition of the board of directors. In particular, outside directors hold powerful authority, from recommending the CEO to recommending fellow outside directors. In other words, outside directors effectively decide KT's CEO. Moreover, the structure allows outside directors to appoint new outside directors. If they control the board, theoretically, they can continuously steer the board itself toward a specific political inclination regardless of the ruling party. Attention is focused on how KT, which has declared a governance restructuring, will transform the existing board that was almost dominated by opposition-leaning outside directors.

As of the 3rd, the temporary KT board members include four outside directors: Kim Yong-heon, a lawyer at Daeryuk Aju; Kang Chung-gu, a professor in the Department of Electrical and Electronic Engineering at Korea University; Yeo Eun-jung, a professor in the Department of Business Administration at Chung-Ang University; and Pyo Hyun-myung, former CEO of Lotte Rental. Except for lawyer Kim Yong-heon, the other three directors resigned just before the recent shareholders' meeting and serve only as 'temporary directors' tasked with forming a new board according to the vacancy clause. In other words, the current KT board has only one outside director and no internal directors from KT.

The temporary directors will operate only until the 'New Governance Establishment Task Force (TF),' which includes external experts, forms a new board. The TF is responsible for promoting improvements across governance, including CEO and outside director appointment procedures and the role of the board. KT's move to restructure the board means that the ruling party has achieved its goals so far. In other words, there is no longer a need to pressure KT under the current government. Many analyses suggest that the ruling party's original target was not the KT CEO but the 'replacement of outside directors' due to the significant influence outside directors hold in a 'widely held company.'

In fact, among the 10 directors active in January under CEO Koo Hyun-mo, three outside directors were so-called 'pro-Roh and pro-Moon' figures appointed during the Moon Jae-in administration. These included Director Lee Kang-chul, who served as Senior Secretary for Civil Society under the Roh Moo-hyun administration; Director Kim Dae-yu, who was Senior Secretary for Economic Policy and head of the Statistics Office under Roh Moo-hyun; and Director Yoo Hee-yeol, who participated in Moon Jae-in's presidential campaign.

Since CEO Koo Hyun-mo's tenure began in March 2020, these directors have extended their terms while two other outside directors were replaced. They reportedly held key committees within the board, such as the 'CEO Candidate Screening Committee' (composed of all outside directors and one internal director) and the 'Outside Director Candidate Recommendation Committee' (also composed of all outside directors and one internal director), thereby controlling personnel decisions.

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Simply put, if KT's outside directors unite, they can continue to renew their terms themselves and appoint new outside directors as they wish. Furthermore, the new CEO is also appointed by the outside directors. For example, according to KT's most recent business report, as of the end of 2022, the Outside Director Candidate Recommendation Committee was chaired by Director Lee Kang-chul and included five outside directors?Kim Dae-yu, Yoo Hee-yeol, Kim Yong-heon, Benjamin Hong?and one internal director, President Yoon Kyung-rim. This means that if the three opposition-leaning outside directors agreed, they could fill the outside director positions with their preferred candidates.

During this period, academic outside directors essentially acted as rubber stamps. According to the Financial Supervisory Service's electronic disclosure system, KT's board approval rate for agenda items last year was 98.83%. Of 64 agenda items, outside directors cast only three opposing or abstaining votes each.

The outside directors who cast opposing or abstaining votes were Director Sung Tae-yoon, a professor of economics at Yonsei University (1 opposition, 2 abstentions); Director Park Chan-hee, a professor in the Department of Business Administration at Chung-Ang University (1 abstention); Director Kim Yong-heon (1 opposition); and Director Benjamin Hong, totaling four. Among them, Professor Sung, who opposed or abstained most frequently, joined the board at the same time as Director Yoo Hee-yeol in 2019 but failed to be reappointed. Professor Park, who abstained regarding an increase in former CEO Koo's performance bonus, also was not reappointed.

The fact that former CEO Koo sought reappointment twice even after the regime change, and that President Yoon Kyung-rim could become the final CEO candidate, is analyzed to be largely due to the influence of opposition-leaning outside directors within the committees.

Although these opposition-leaning directors eventually resigned amid continued pressure from the ruling party and intensified prosecution investigations targeting management, their resignation did not lead to KT's management normalization. An industry insider said, "The presidential office and ruling party's goal might have been the replacement of outside directors, not the CEO change," adding, "Because only if the outside directors align with them can they appoint their preferred candidates as the next and subsequent CEOs." The problem is that if KT maintains the current board structure, the outside director positions will be occupied by those favored by the current regime. This could sow the seeds of discord again if the regime changes later.

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