Korea’s Financial Investment Services and Capital Markets Act Amendment Requires Board Diversity – Corporate / Commercial Law

1. Objective

A further revision of the Law on Financial Investment Services and Capital Markets (“FSCMA“) adopted in early 2020 will enter into force on October 21, 2021. This amendment includes a new provision, Article 165-20, which requires the board of directors of a listed company with total assets of KRW 2,000 billion or no longer be entirely one-sex, in other words, diversity is required by law The current law is as follows.

Article 165-20. Special provision regulating the gender composition of the board of directors.

A listed company 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 2,000 billion or more at the end of the last financial year, must not staff its entire board of directors with members of the same sex.

The aim of introducing this new provision is to promote gender equality so that women expand their roles in economic activities, ensure diversity in business decision-making and encourage changes in business. corporate culture.

For reference, in accordance with the G20 / OECD Principles of Corporate Governance (jointly ratified by the OECD and the G20, hereafter “OECD Principles“), corporate governance is a system that guides and controls a company, designed to protect the interests of stakeholders at all times as long as they are compatible with the public interest. According to the OECD principles, a good corporate governance becomes the essential means of creating a market Applying this perspective, the aforementioned OECD Principles consist of six chapters: (1) Securing the basis of an effective corporate governance framework; (2 ) The rights and fair treatment of shareholders and key ownership functions; (3) 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 of directors Chapter 6 (“The responsibilities of the board of directors”) states that the diversity of the composition and of the point of view of the board arises from several factors (p. ex. gender, experience, race, age, method of problem solving, etc.) and gender diversity is a way to encourage constructive discussions and improve board performance.

Thus, many European countries such as Norway, Finland, Spain, Belgium, France, Germany, Italy, have introduced bills ensuring the representation of women on boards of directors. enterprises. Likewise, the state of California in the United States enacted a law (California bill SB 826) in late September 2018, requiring listed companies based in California to include at least one female executive on their boards of directors. The enactment of this law is seen as an effort to adapt to global trends aimed at facilitating the participation of women in economic activities.

2. Main aspects of the amendment

The new provision requires listed companies with total assets of KRW 2,000 billion or more not to compose the entire board with directors (registered officers) of the same sex. However, there is no provision imposing civil / criminal penalties or a disclosure obligation for violation of the above provision. However, regardless of the penalty provisions, if a board composition violates the new requirement, a board resolution and management’s execution thereof may be denied and unenforceable.

3. Anticipated effects

1. More women directors on the board

As a direct result of the enactment, we have seen a significant increase in the number of female directors appointed for publicly traded companies with total assets exceeding KRW 2,000 billion (as of December 31, 2020) in anticipation of the amended FSCMA – on number of companies headed by women grew from 37 companies (36 companies listed on KRX, one company listed on KOSDAQ, as of December 31, 2019) to 62 companies (61 companies listed on KRX, one company listed on KOSDAQ, as of 31 December 2020). The number of such companies is expected to increase further as the amendment goes into effect in October.

2. Higher ESG performance scores

According to an empirical analysis that examined the relationship between board gender diversity and environmental, social and governance criteria (“ESG“) corporate ratings published by ISS Corporate Solutions, analysis shows1 that companies with diverse boards of directors achieved higher ESG scores. This finding suggests that a board of diverse genders responded better to risk, provided a more comprehensive overview of client trends and priorities to key stakeholders, and improved board participation and effectiveness.

The ESG rating is significant because it is linked to the plans of the Korean government. From 2021, the Korean National Pension Service plans to apply ESG ratings to investment decisions regarding domestic stocks and bonds, and plans to significantly increase the share of ESG investments to around 50% of total assets since. 2022. By Likewise, the Financial Services Commission plans to require all publicly traded companies to disclose their corporate governance reports from 2026. Such external pressures will likely impact the number of directors appointed to the board of directors, even for companies not subject to FSCMA. in order to improve their ESG rating.

4. Limits and implications

One limitation of the amendment is that despite the increase in the number of female directors, this generally remains with outside directors. Of the 211 listed companies with total assets of KRW 2,000 billion or more, only 14 companies have appointed female internal directors (14 KRX listed companies, as of December 31, 2020). Out of the 14 companies, only 4 companies have appointed female inside directors who are not related to the majority shareholders (the women inside directors of the other 10 companies are in fact the majority shareholders or their affiliates).

Another limitation is that the appointment of female directors does not automatically improve ESG ratings. Thus, it is necessary to implement some internal measures – for example, establish rules related to ESG and implement related policies, etc.


1. Cristina Banahan and Gabriel Hasson. “Across the Board Improvements: Gender Diversity and ESG Performance”, Harvard Law School Forum on Corporate Governance and Financial Regulation, 2018.9.6. https://corpgov.law.harvard.edu/2018/09/06/across-the-board-improvements-gender-diversity-and-esg-performance/

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