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Black, Bernard; Klausner, Michael; Cheffins, Brian --- "Shareholder Suits and Outside Director Liability: The Case of Korea" [2012] ELECD 868; in Kim, Hwa-Jin (ed), "Korean Business Law" (Edward Elgar Publishing, 2012)

Book Title: Korean Business Law

Editor(s): Kim, Hwa-Jin

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781781003398

Section: Chapter 2

Section Title: Shareholder Suits and Outside Director Liability: The Case of Korea

Author(s): Black, Bernard; Klausner, Michael; Cheffins, Brian

Number of pages: 25

Extract:

2. Shareholder suits against Korean
directors
Bernard Black, Brian Cheffins and Michael
Klausner

I. INTRODUCTION1

Korea engaged in extensive corporate governance reform after the 1997­98
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 owner-
ship 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 ...