Samsung Group announced on Thursday that it is implementing a new system to increase board accountability, reaffirming the company’s intention to overhaul its governance as it approaches the first anniversary of Lee Jae-yong’s appointment.
The “Senior Outside Directors System” chooses a senior outside director to represent the external directors of its affiliates. This helps maintain a proper balance of management when a CEO or an inside director also serves as the board chair, the nation’s largest conglomerate explained.
Senior outside directors can convene and preside over meetings of outside directors and request management reports on major issues. The group added that the system is expected to enhance the independence and status of the board of directors.
Samsung SDI and Samsung SDS will be the first to introduce the new system. Both companies held board meetings on Thursday and appointed two senior outside directors. Kwon Oh-kyung from Hanyang University and Shin Hyun-han from Yonsei University were appointed senior outside directors, respectively.
Samsung affiliates are also considering introducing the system of senior outside directors, except eight affiliates ― Samsung Electronics, Samsung Electro-Mechanics, Samsung Life Insurance, Samsung Fire & Marine Insurance, Samsung Securities, Samsung Card, Samsung Asset Management, and Samsung C&T ― that already have outside directors as board chairs.
Although the senior outside directors system is not mandatory for non-financial companies under the Korean Commercial Code, the group plans to adopt it proactively. The system is mandatory in the financial sector.
Korean companies often appoint their CEO to the position of chairman of the board of directors to streamline management. Another notable feature of Korean companies is that the inside directors hold greater authority than the outside directors.
On the other hand, major U.S. companies have implemented the senior outside director system in the early on. As of 2022, 36% of U.S. boards have outside directors as their chairman, while 68% of companies have adopted the senior outside director system.
For instance, Calico’s Chairman Arthur Levinson, who was once a senior outside director at Apple, became the Chairman of the board of directors after Steve Jobs passed away. Levinson played a key role in the process that led to the appointment of Tim Cook as CEO in 2011. Cook, in addition to being the CEO of Apple, is also a senior outside director and chairman of the compensation committee at Nike.
This article was originally published on Oct. 26, 2023.
