The Female Breeze Blowing Through the Board, Opening the Era of Women Outside Directors

This Year, Female Outside Directors Make Up 25%
Expected to Increase Further
Companies with Over 50% Female Outside Directors Emerging One After Another

Editor's NoteFemale outside directors are emerging as a leading group of female experts representing South Korea. Since the enforcement of the Capital Market Act, which prevents a single gender from monopolizing the board of directors, companies have been making efforts to recruit female outside directors. Looking at the profiles of female outside directors, they are prominent figures from academia, business circles, and the legal profession. Regardless of gender, they are regarded as top experts in their respective fields. As the perception that diversity is a competitive advantage spreads, the number of female outside directors continues to increase. There are two perspectives on them. Some worry that, contrary to the original intent of the outside director system, their role is limited to merely filling quotas. Others expect that having broken the 'glass ceiling' to reach their current positions, these women can also break the prejudice against outside directors, who have often been seen as mere rubber stamps. Standing at this crossroads, we take a look into the world of female outside directors. This series covers the roles, challenges, and visions of notable female outside directors in corporate boards.

A 'female breeze' has begun to blow through the boards of major domestic conglomerates. At the center of this is the female outside director. Outside directors are external experts who monitor management and check major shareholders. The proportion of women among these outside directors has exceeded 20%. It is expected to increase further. The era of female outside directors has truly begun.

Asia Economy analyzed the '2022 Business Reports' of the top 100 listed companies in Korea by market capitalization (excluding financial companies) as of the end of Q1 this year. There were a total of 444 outside directors, of whom 93 were women, about 21%. Among newly appointed outside directors this year, the proportion of women is even higher. The Korea ESG Evaluation Institute conducted a full survey of 187 outside directors newly appointed at the regular general meetings of the top 100 listed companies this year, finding that women accounted for 25%. The proportion of female outside directors in the top 100 companies increased from 7.9% in 2020 to 15% in 2021, and entered the 20% range for the first time last year. The number of female outside directors is expected to continue rising.

The main reason is the Capital Market Act, which has been in effect since August last year. This law mandates gender diversity in the composition of boards for listed companies with total assets of 2 trillion won or more. The ESG Evaluation Institute stated, "Companies are following suit to avoid negative impacts on investment and public opinion in corporate reputation, including ESG management," and predicted, "The proportion of female outside directors will continue to grow."

However, companies are not just appointing one woman to meet the quota because of the law. Companies with female outside director ratios exceeding 50% are emerging. Kakao and Samsung SDI are representative examples. Kakao recently appointed Shin Seon-kyung, a lawyer from the law firm RIOU, at its shareholders' meeting. Along with Park Sae-rom, assistant professor of Industrial Engineering at UNIST, and Choi Se-jung, professor of Media Studies at Korea University, who are already serving as outside directors, Kakao has a total of three female outside directors. Three out of four outside directors are women. Samsung SDI also appointed Lee Mi-kyung, head of the Environmental Foundation, making women half of its four outside directors.

Expectations for female outside directors are high. It is seen as the beginning of a wind of change transforming corporate board culture. Lee Jeong-han, president of the Korea Women Entrepreneurs Association, said, "The increase in female executives helps promote diversity within organizations and enhances inclusiveness, leading to more creative and innovative companies." She explained, "The active participation of competent female executives is very important and has a positive impact, providing motivation and inspiration to future generations."

Nonetheless, despite these changes, many companies still lack female representation on their boards. Although the Capital Market Act effectively mandates the appointment of female directors, there are no penalties for non-compliance. According to a CEO Score survey conducted last April, among 172 listed companies with total assets of 2 trillion won or more, 30 companies (17.4%) still had all-male outside directors. Among companies with assets under 2 trillion won, only 8.2% had even one female outside director. Lee emphasized, "More companies need to actively appoint female outside directors to contribute to the healthy and sustainable development of our society and economy."