Board of Directors Comparison

Board of Directors Comparison

Introduction

After the economic slump in the 90s, South Korea has emerged a considerable force with revolutionary measures to deal with the problem of the past economic regimes. The current corporate world in South Korea is vibrant, with local and international companies enjoying good business in the country. The reform in the country, as well as better political will by the authorities, has led to a better business environment as the country continues to make inroads in the inter international market. In comparison to the United States of America, the approach is almost similar to local adjustment concerning the details in the governance. The boards of companies are provided almost the same privileges and rights even though there are a few differences, especially in the independent directors and other reasons that they enjoy. The paper, therefore, compared the issue sin the corporate provisions in the United States and South Korea with the board of directors.

Corporate Trends in South Korea

Recent corporate trends in South Korea show a keen approach and regulations on the directors as well as driving towards better transparency in the dealings of the companies. The Commercial Code, which was amended in 2014, was meant to address the taxation loopholes in the corporate laws, especially with the unregistered shares or shareholders. The unregistered shares made it challenging to effect regulation laws effectively (Chang et al., 2015). At the same time, the amendment addresses the rights of the shareholders, so there are a clear mandate and power to them. The amendment, therefore, abolished the unregistered shares so that tee is a clear path towards better governance. Corporate trends governed by the commercial code are similar to the Company Act in the United States, which manages the corporation operating within the jurisdictions. The most prevalent issues in the board of directors concern independent directors, charity relations, and corporate social responsibility.

The Board of Directors

Composition

Articles of incorporation provide for the company created to have a bar of directors. The companies are required to have a board of directors who will run the firm. However, there are restrictions on the amount of capital injection, which will then influence the composition of the board of directors. In South Korea, there is a limit of about KRW1 billion for small companies.  Aces of the small companies where the money does not exceed the KRW1 billion, the provision of the boards can be replaced by two directors who will run the organization (Alves, Couto & Francisco, 2015). The work of the board of directors is primarily to check the conduct of the amendment and provide an oversight role in the running of the activities of the firm. In the United States, the board must be composed of not less than five members and not more than fifteen members. Independent directors are provided at about 20 percent of the entire board. Executive and no executive can also be incorporated on the board. While the United States regulation of the board of directors is more straightforward, the South Korean provision included a few more controls ostensibly to localize the management to adapt to local needs.

Gender Balance

Just like in the United States, there are no gender or age limit restrictions on the composition of the board. However, there is a slight difference in the structure in the United States compares to Korea based on age and, more specifically, the representation of women. Recently there has been a clamor to have more women in the board of directors so that the gender gap is bridged. In South Korea, the boards of governance are male-dominated, with most of the firms featuring men in the executive positions as well as the other top managerial positions (Agarwal et al., 2016). Studies show that women in leadership positions are between oriented to success and more risk-averse, but the trend seems not to have caught up with South Korea. While the United States fares better in the gender balance in the composition of the board, the number is still Low. However, South Korea is almost exclusively male-dominated in the boards, taking about 17 percent of the nations with male-dominated boards. The United States is affected by governance issues, and it represents about 20 percent repetition of females on the boards. In both countries, there is no regulation to have women on the boards.

Corporate Social Responsibility

Another issue of concern in the boars of directs s the corporate social responsibility of the United States and South Korea. Generally, it is thought the boards in the United States are under pressure to engage more in corporate social responsibility that South Korea since the nations are still conservative. However, studies have shown that the social corporate responsibility needs of both countries are different, and they are all linear (Cho & Chun, 2016). American corporate world is under immense scrutiny to work better to fulfill corporate responsibility. At the same time, the board of directs in the united states has learned to around the issue together with the management, so that is more of a marketing tool rather than genuine corporate responsibility of the people. South Korea is more conservative, and the boards take conventional approaches to deal with corporate social responsibility. The needs of the countries are different, and therein the difference in the attitude towards corporate social responsibility. However, it is essential to understand that the United States boards have been mandated even by the law to engage in corporate social responsibility and while South Korea also places regulations, but they are not as a population the United States.

Independent Directors

An independent director is one who has no material relationship with the company. Outsides directors, as they are referred to as in the United States, are required by law to make about 66 percent, which is the majority of the boars as the regulation states. The composition for the outside directors in the United States cannot exceed 120,000 dollars (Chang et al., 2015). The director cannot be a partner in the business, not a shareholder, nor can they have some other relationship with the company. However, the provisions of the independent directors are becoming more controversial in the contemporary world. The director is expected to act as checks and balance to the management, but the modern sense of the directors raise controversy, especially in the United States. Independent directors are said to be adverse influences by the executive or the management, which interferes with the working of the organization. The independent directors can, at the same time, interfere with the running of the company yet remain independent all the same.

Another loophole in the independent directors witnessed in the United States is the relationship that they have with the firm. According to the regulations, outside directors are not to have any contact with the firm. However, charity organizations can have their affiliates as outside directors, which complicate the situation for the firm or the regulators. Outside directors cannot contribute more than 1 million dollars for the firm to avoid them having divided interest in the duties. However, the regulation allows for contributions from charity organizations (Chang et al., 2015). Therein lies the loophole as people with charity organizations can be director while at the same time contribute more than 1 million dollars to the company. As such, the outside directors can have undue influence with the company even with the regulations in place.

In South Korea, the situation with outside directs taken another turn altogether by having influential people as outside directors. Outside directors in South Korean firms are more from the political elite or senior government officials (Chun, 2016). The ted has caught in the modern sense of doing business as the top government officials continue to influence significant decisions in the firms. After the regulation requiring at least a quarter of the directors to be independent to boost the oversight function of the firm, the firms have been noticed to have a penchant for the political elite as outside directors. If it is not among the political elite, former high ranking officers are now the norm. The trend points to the desire of the firms to have relations, especially with the government.  The desire to have the best links or the connections with the government, therefore, plays a significant role in the current trend. While the trend is catching on, the suspicion is rife on the part of independent directors that have connections with the government.

Conclusion

The corporate world in the United States and Korea has all had tremendous improvement both in the size of operations and the success of the activities. At the heart of the corporate world are the regulations that guide the corporate functions. Boards of directors are an integral part of the corporate world, and both the United States and South Korea have robust boards. Boards of directors provide oversight for the management, and their importance cannot be overstated. The issue of interest in boards of directors in South Korea is about the compositions and the role of the indene directors. Gender balance in boars of directs is the primary concern for the corporate world in South Korea. While the United States is more gender-responsive in board composition, South Korea remains rigidly conservative. The role of the independent directors and the relationship with the firm remains another issue in the two countries. While Korea goes out for former government official s outside directors, the United States exploits the charity organizations and their role as independent directors.

References

Agarwal, S., Qian, W., Reeb, D. M., & Sing, T. F. (2016). Playing the boys game: Golf buddies and board diversity. American Economic Review, 106(5), 272-76.

Alves, P., Couto, E. B., & Francisco, P. M. (2015). Board of directors’ composition and capital structure. Research in International Business and Finance, 35, 1-32.

Chang, Y., Oh, W., Park, J., & Jang, M. (2015). Exploring the Relationship Between Board Characteristics and CSR: Empirical Evidence from Korea. Journal Of Business Ethics, 140(2), 225-242. doi: 10.1007/s10551-015-2651-z

Cho, E., & Chun, S. (2016). Corporate social responsibility, real activities earnings management, and corporate governance: evidence from Korea. Asia-Pacific Journal of Accounting & Economics, 23(4), 400-431.

Chun, K. (2016). Korea’s Mandatory Independent Directors: Expected and Unexpected Roles. SSRN Electronic Journal. doi: 10.2139/ssrn.2824303