Megastudy, one of the most prominent private education institutions in South Korea, appointed Nam Goo-joon, the former head of the National Office of Investigation, as its outside director. The institution is under police investigation for an alleged “private education cartel.” Despite significant suspicion that the appointment was made in response to the inquiry into alleged collusions between public and private educators, Nam has retained his role as an outside director without providing any explanation.
The outside director system was introduced in 1997 in response to the foreign exchange crisis. It was supposed to allow outside experts whom major shareholders do not influence to join the board of directors to increase transparency in corporate management. However, the practice has become commonplace for appointing judges, senior bureaucrats, and influential figures from government agencies like the National Tax Service to serve as lobbyists and cronies rather than business experts. During the general shareholders’ meetings in March, 71 companies in the top 30 conglomerates nominated 103 outside directors. Surprisingly, 40% of these nominees hailed from legal and bureaucratic backgrounds. Samsung Group, grappling with judicial risk, appointed 13 out of its 18 new independent directors (72%) from former judges, prosecutors, and bureaucrats.
These appointed outside directors have become “yes-men” who vote 100% in favor of management, neglecting their primary responsibility of overseeing management and ensuring transparent governance. Lacking expertise in management issues, they cannot effectively evaluate managerial decisions. Nevertheless, they still receive substantial salaries and benefits. On average, outside directors in the top 100 South Korean companies earn approximately 80.42 million won annually (about $59,328). Outside directors of POSCO Holdings once took a luxury trip on a chartered plane, spending 100 million won (about $73,773) on food alone.
In the case of Taiwan’s TSMC, Samsung’s rival, five of the six outside directors consist of the world’s top IT and semiconductor experts, including a former chairman of BT Group, a former vice president of Intel, and a former president of MIT. In contrast, only one of Samsung’s six outside directors is an IT expert, and the majority are former bureaucrats and financiers. How does this arrangement of outside directors increase shareholder value and fortify its global competitiveness?
