SOUTH KOREA Law and Practice Contributed by: Ho Joon Moon, Tae Jung Kim, Do Kyeom Kim and Ji Geon Park, Lee & Ko
Duty of Care Directors execute the company’s affairs accord - ing to the delegation relationship, thereby assuming a duty of care towards the company. Duty of care entails a standard of care that is generally and objectively expected of directors in transactions. It requires directors to actively execute their duties in the company’s best inter - ests, utilising the company’s human and material resources to their fullest extent while prudently assuming risks. If a director breaches their duty of care, they may be subject to criminal prosecu - tion in addition to liability for damages to the company. However, based on court rulings, in assessing whether there has been a breach of the duty of care by a director, the Business Judgment Rule is applied. Under this rule, if a director exercised their duties based on business judgment, even if that judgment is later found to be incorrect and results in harm to the company, it does not constitute a breach of the duty of care so long as it was made in good faith and with reason - able attention. Duty of Oversight This is an obligation to monitor the conduct of other directors in order to prevent them from violating their duties. The scope of the duty required of directors varies depending on their roles. Inside directors, including representative directors, have the duty to oversee and super - vise the general affairs of the company and the performance of all employees, including other directors. On the other hand, based on case law, outside directors, not possessing executive authority and not engaging in day-to-day management, do not have the same scope of the duty as inside directors. However, they are judged to have vio -
lated their duty of oversight (i) when they knew or had reason to suspect that business execution by other directors has been illegal and ignored it, or (ii) have failed to fulfil appropriate actions to ensure that the company’s compliance system is adequate and meets the necessary require - ments to operate in the industry within which the the company operates. The duty of oversight for directors is gradually strengthening, leading directors to more actively fulfil their oversight responsibilities, and resulting in an increase in cases of directors joining direc - tors’ and officers’ liability insurance. The KCC also stipulates the following duties of a director: • duty of confidentiality; • duty of non-competition; • duty against usurpation of corporate opportu - nities and assets; • duty against self-dealing; • duty to prepare financial statements; and • duty to report. 4.7 Responsibility/Accountability of Directors Although members of the board of directors are appointed by the shareholders of the company, the board of directors (and each of its members) represents, and owes legal duties such as Fidu - ciary Duties to, the company and the company only. That said, active discussions are in pro - gress in South Korea regarding the recent expan - sion of the scope of Fiduciary Duties. Please see the Trends and Developments section for more details regarding these recent discussions. Accordingly, directors assume various duties noted in 4.6 Legal Duties of Directors/Officers ,
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