Monitoring of Corporate Groups by Independent Directors

Abstract

Both the United States and Korea have reformed their corporate governance in recent years to put increasing responsibilities on independent directors. Independent directors have been found to be an important force protecting the interests of shareholders when it comes time to make certain highly salient decisions, such as firing a CEO or selling the company. This article compares the role of independent directors in the US and Korean systems. I argue that the US may have placed regulatory burdens on independent directors that they are unlikely to be able to satisfy, given their part-time status. By contrast, in the chaebol system of Korea, independent directors may have a critical role to play in limiting self dealing by controlling shareholders. Given the dominance of these controlling shareholders in the Korean economy, independent directors will need strong backing to be effective in protecting the interests of public shareholders.