Chapter 2: Shareholder Suits and Outside Director Liability: The Case of Korea
2. Shareholder suits against Korean directors Bernard Black, Brian Chefﬁns and Michael Klausner I. INTRODUCTION1 Korea engaged in extensive corporate governance reform after the 1997–98 East Asian financial crisis. The reforms included a mandate that outside directors constitute a significant fraction of public company boards (25 percent for all public companies; a majority for large companies). Suing directors also became easier due to the introduction of new fiduciary duty rules, a procedure for securities class actions, a much lower ownership threshold for shareholders to bring a derivative suit, and changes in attorney fee rules. These reforms were motivated by the belief that outside directors can play an important role in monitoring and constraining potentially wayward or self-interested managers and controlling shareholders, and that outside directors will be more effective if they face a threat of liability. There is evidence that the belief in the value of outside directors was not misplaced. Board independence appears to causally predict higher share prices for Korean firms.2 The “channels” that could explain this impact on 1 This article is a shortened and modestly updated version of Black, Cheffins and Klausner (2011). That article, in turn, was prepared for a conference held in 2004, and was only partially updated for publication. The published version of this article will also be available on SSRN, at http://ssrn.com/abstract=913623. We do not read Korean and cite principally English language sources, but were advised by experts in Korean law that our description of Korean law is...
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