Following a recent change in regulations limiting tenures of outside directors, South Korea companies are scurrying to scout new members ahead of their general shareholders meetings in March.

Citing a need to reinforce shareholders’ rights and institutional investors, the Cabinet approved on Tuesday revisions to the enforcement decrees of the Commercial Act, Capital Market Act and National Pension Act.

To secure independency of outside board directors, the revised rule limits people who have worked at an affiliate within three years to become a member -- from the original two years. Outside directors are also banned from serving for six years at a single firm and nine years total when including an affiliate company.

The amendment also increases the scope of disclosure of information including tax arrears of candidates for outside directors and auditors.

Industry watchers said companies are in a pinch with about two months to spare before their general shareholders meetings in March following the changes.

Most listed companies here hold their general shareholders meetings in March in accordance with the law that enforces companies to hold the event within 90 days since the settlement of their accounts that usually wraps up from December to February.

With the change, of all listed firms in Korea, 566 companies should newly appoint at least 718 outside directors in the period, according to the Korea Listed Companies Association.

Of them, 87.3 percent or 494 companies are small and midsized companies.

“While larger firms would have less problem in finding outside directors as those positions are paid higher and more coveted, smaller companies face problems finding candidates due to their lower profile and pay,” said an official of the association according to Yonhap News.

The new obligation to publicize a candidate’s tax payment history and any law violations would also discourage more people from taking on the job, according to industry watchers.

Previously, only the information of the candidate and the company, such as their relationship and transaction details, were disclosed. This raised questions that there was no information to determine the candidate’s eligibility. From next month, a company should reveal more details, such as whether the candidate has a history of defaulting on taxes or of serving as an executive at an insolvent company.

By groups, Samsung and SK must newly appoint six outside directors, each, by March. LG, Youngpoong, and Celltrion should replace five directors, while LS needs to change four and Hyundai Motor, GS, Hyosung and KCC have to replace three each.

By companies, Celltrion faces the most urgency. Five out of six outside directors have to be changed. Celltrion’s directors Kim Dong-il, Lee Yo-seop and Cho Kyun-seok have been on the boards for more than 10 years. Cho Hong-hee and Jeon Byung-hun have been outside directors for seven years and six years, respectively.

Business lobby groups have been criticizing the latest changes.

In a statement announced recently, the Korea Employers’ Federation slammed the reinforced regulations as “an overregulation that cannot be found in any other countries,” by banning even the competent outside directors with expertise from serving more than six years.

They also cited stricter voting conditions, including the scrapping of shadow voting since 2017, would confuse companies by failing to pass important decisions due to insufficient quorums.

The Federation of Korean Industries also released a statement saying the new regulations “excessively meddle in companies’ management.”

By Shin Ji-hye (shinjh@heraldcorp.com)