Ashley Summerfield, right, Egon Zehnder's Global Board and CEO Practice Group leader, and Lee Hee-jae, second from right, the firm's Seoul office leader, participate in the J.P. Morgan Korea Conference at The Shilla Seoul, Thursday. Courtesy of Egon Zehnder

Korean corporate governance has improved significantly over the past decade, but board independence remains a key structural weakness that continues to weigh on investor confidence, according to leaders at Egon Zehnder.

In many conglomerate-affiliated companies, independent directors are still appointed with the influence of controlling shareholders, limiting the board’s ability to effectively challenge management, a factor that has contributed to the persistent “Korea discount," they said.

Egon Zehnder is the world’s largest privately held executive search firm and the third-largest globally in executive search and leadership advisory. Its Seoul office has been operating for more than 25 years.

“The most fundamental issue is board independence in practice, not just on paper. Independent directors exist, but in chaebol (conglomerate)-dominated companies, they have historically been appointed through controlling shareholder influence, which means the oversight function is often compromised,” Ashley Summerfield, Egon Zehnder's Global Board and CEO Practice Group leader, said in an interview with The Korea Times.

Ashley Summerfield, Egon Zehnder's Global Board and CEO Practice Group leader / Courtesy of Egon Zehnder

“Global best practice requires boards that can genuinely challenge management, and Korean boards have much room for improvement on this front.”

Summerfield, based at the firm's London office, visited Seoul last week to attend the J.P. Morgan Korea Conference Thursday, where he led seminars on governance and board evaluation. During his visit, he also met with executives from multinational institutions and major Korean corporations.

Summerfield said controlling families at some Korean firms have routed profits through related-party transactions or restructured entities in ways that benefit insiders at the expense of outside shareholders. This has been a key factor behind the Korea discount, where Korean companies trade at a structural valuation gap compared with global peers, although the gap has narrowed somewhat in recent years.

Summerfield stressed that while Korea’s owner-centric governance structure has helped drive the rapid growth of the country’s conglomerates, it also raises questions about board effectiveness.

Source: Korea Times News