SK Group vows to let boardrooms play central role
SK Group said that it would reform its governance structure to guarantee its affiliates' boards of directors the abilities to exercise their authority and fulfill their responsibilities as the highest decision-making bodies. To this end, the group will enable the active involvement of its subsidiaries' boardrooms in corporate operations, ranging from recommending CEOs to their assessment and rewards. SK, Korea's third-largest family-run conglomerate, or chaebol, has gotten to the point of corporate governance reform. The group must put the reform plan into action in good faith even if it encounters some difficulties. We hope that this trend spreads to the rest of the business community.
It is more than natural for businesses to run independently, with their board of directors playing a central role. The Commercial Act also stipulates that key decisions are made in boardrooms established by resolutions passed at general shareholders' meetings. However, the reality in Korea is quite different. Notably, the largest shareholder of a chaebol, often called the chairman or "group head," holds sway over selecting executives at subsidiaries and is deeply involved even in day-to-day operations through planning or strategic offices. The boards of directors, more often than not, act as rubber stamps rather than keeping the chairmen's dictatorial or unlawful acts in check.
SK Group was no exception. The group's "SUPEX Council" has served as its highest consultative body, assisting Chairman Chey Tae-won. The council has always presented specific guidelines for selecting CEOs or "sent" a list of candidates to affiliates. From this year on, however, the group will let boards of directors evaluate top managers' performances and decide their rewards. It will also have personnel management committees within the boards of directors that recommend CEO candidates. The group's governance reform plan reportedly aims at dissolving the "governance discount" at stock markets. It is also part of efforts to improve environmental, social and corporate governance (ESG) standards.
The success of the board-oriented management depends on how they recruit competent outside directors. Chaebol owners should allow outside directors to fulfill their authority and responsibility. The tycoons also need to let boards of directors decide on concrete management issues independently in order to practice board-centered operations true to their name. They must also remember that an independent management system is difficult to establish but easy to destroy.