Leaders Index Analysis... 21% of Prosecutors Are Former Bureaucrats
"Diversifying Outside Directors Is Advantageous for Value-Up"
Among outside directors of the top 30 domestic conglomerates, one in four is a former government official. Among outside directors with a bureaucratic background, one in five is a former prosecutor. It has been pointed out that the board's specialized capabilities are concentrated in the legal and policy fields, resulting in a lack of diversity and running counter to international trends.
On the 9th, Leaders Index, a corporate analysis research institute, announced the results of an analysis of the backgrounds and expertise of 856 outside directors from 237 companies affiliated with the top 30 conglomerates that submitted quarterly reports.
The number of outside directors with a bureaucratic background among the top 30 conglomerates increased by 28 (3 percentage points), from 201 (24.3%) in 2023 to 229 (27.3%) last year, showing the largest growth.
Among last year's outside directors with bureaucratic backgrounds, former prosecutors accounted for the largest share with 48 (21%). They were followed by 41 (17.9%) from the National Tax Service, 29 (12.7%) from the judiciary, 16 (7%) from the Ministry of Economy and Finance, and 9 (3.9%) each from the Fair Trade Commission and the Ministry of Trade, Industry and Energy.
Leaders Index pointed out that as the proportion of outside directors with bureaucratic backgrounds increases, the board's expertise is also concentrated in specific fields.
Among eight fields last year, outside directors with expertise in legal and policy areas accounted for the largest share at 29.8%. This was followed by finance and accounting (17.5%), technology (14.1%), financial investment (13.1%), business (12.3%), environment and ESG (4.4%), marketing (3.2%), and taxation (1.9%).
The number of female outside directors exceeded 20% for the first time last year, reaching 173 (20.2%). By area of expertise, legal and policy led with 53 (30.6%), followed by finance and accounting (16.8%), technology (15.6%), corporate management (13.3%), and ESG (8.7%).
Among the groups, Shinsegae had the highest proportion of outside directors with bureaucratic backgrounds at 73.9%. Of the 23 outside directors, 17 were former government officials, most of whom had expertise in legal or policy fields. CJ (57.7%) and Samsung (46%) followed.
In Samsung's case, it was also the group with the largest increase in the proportion of outside directors with bureaucratic backgrounds compared to 2023. Last year, 13 of the 19 newly appointed outside directors were former government officials, increasing the proportion from 30.5% to 46%.
Leaders Index criticized that as corporate outside directors are concentrated among former government officials and legal and policy experts, domestic corporate management is going against international trends. This contrasts with recent major advanced countries' listed companies adopting Board Skills Matrices (BSM) to expand board diversity.
Leaders Index stated, "The market consensus is that the more diverse the expertise of outside directors, the higher the transparency of governance and the more advantageous it is for value-up (enhancement of corporate value), but domestic large corporations appear to be going against this international trend. For boards to effectively oversee companies, diversity in members' capabilities, expertise, and experience is essential."
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