Amendment Of The Financial Investment Services And Capital Markets Act Of Korea Requires Board Diversity

• Published date: 23 June 2021
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, Corporate and Company Law, Directors and Officers, Corporate Governance
• Law Firm: DR & AJU LLC
• Author: Sangbong Lee and Sohyun Ki

1. Purpose

A new revision to the Financial Investment Services and Capital Markets Act ("FSCMA") passed in early 2020 will be taking effect this October 21, 2021. This amendment includes a new provision, Article 165-20, which requires that the board of directors of a listed company with a total assets of KRW 2 trillion or more shall not be entirely comprised of individuals of one gender; in other words, diversity is required by law. The actual law is as follows.

Article 165-20. Special provision regulating the gender composition of the board of directors. A publicly listed companies with total assets [for a company engaging in financial business or insurance business, it shall be the amount of total capital (amount calculated by subtracting total liabilities from total assets in the financial statements) or capital stock, whichever is the greater] of KRW 2 trillion or more at the end of the latest financial year, shall not fill the entirety of its board of directors with members of one gender.

The purpose of introducing this new provision is to promote gender equality for women to expand their roles in economic activities, to ensure diversity in corporate decision making and to encourage changes in the corporate culture.

For reference, according to the G20/OECD Principles of Corporate Governance (jointly ratified by the OECD and G20, hereinafter "OECD Principles"), corporate governance is a system that guides and monitors a corporation, designed to continuously protect the stakeholders' interests to the extent they are consistent with the public interest. According to the OECD Principles, good corporate governance becomes the essential means to create market confidence and business integrity. Applying this perspective, the aforesaid OECD Principles consist of six chapters: (1) Ensuring the basis for an effective corporate governance framework; (2) The rights and equitable treatment of shareholders and key ownership functions; (3) Institutional investors, stock markets, and other intermediaries; (4) The role of stakeholders in corporate governance; (5) Disclosure and transparency; and (6) The responsibilities of the board. Chapter 6 ("The responsibilities of the board") provides that diversity of board's composition and perspective comes from multiple factors (e.g., gender, experience, race, age, problem-solving method, etc.) and gender diversity is a means to encourage constructive discussions and improve performance of the board.

As such, many...