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Top four business groups need more female board representation
By Kim Bo-eun
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Among these factors, leading global corporations have been seeking to ensure diversity at the board level, to reflect a wider spectrum of thoughts. They have primarily been seeking to improve gender representation, a move that gained traction after the global financial crisis in 2008.
Figures such as European Central Bank (ECB) President Christine Lagarde have put forth the idea that had it been the "Lehman Sisters," the financial crisis may not have been as deep, given the tendency of women to avoid risks compared to men.
The largest corporations in Korea have lagged behind in this aspect, but have recently moved to include female board members after the National Assembly passed revisions to related regulations last year.
The Capital Market Act was revised in February 2020, to prevent listed firms with at least 2 trillion won in assets from having boards comprised solely of men.
Samsung, Hyundai, SK and LG have scrambled to meet the requirement prior to the revisions going into effect in August next year.
Status quo at Samsung, Hyundai, SK, LG affiliates
One of the key agenda items at general shareholders meetings in March of core Samsung, Hyundai, SK and LG affiliates was appointing board members.
The appointments of new female members by these companies made headlines. The traditionally male-dominant Hyundai Motor appointed its first female board member, Lee Ji-yun, a KAIST associate professor of aerospace engineering.
While the latest appointments were made to comply with the law, a Hyundai Motor official said "Hyundai Motor is changing, as can be seen in the increasing appointments of female managers within our organization."
According to the Korea CXO Institute, companies ranking among the country's top 100 appointed a total of 31 female board members this year. But most boards only have one female member, and in most cases they are outside directors.
Samsung Electronics has one female external director on its board, as does Hyundai Motor, SK hynix and LG Electronics. The female members take up one out in 10 positions on the board, making the female ratio just 10 percent.
According to a report published by the Credit Suisse Research Institute in September, women account for an average of 24 percent of board positions at companies around the world. The institute tracked the gender ratio on boards of over 3,000 companies in 46 countries for the report. Europe and North America led the global average with 34.4 percent and 28.6 percent, respectively. The Asia Pacific region's figure was 17.3 percent.
The 10 percent female representation on Korea's four major conglomerates' boards falls well short of the global average of 24 percent as well as Asia Pacific's 17.3 percent. Currently, it appears that companies have included a female member on the board purely because it is mandatory and not because they feel it is truly necessary.
Female board members remain a minority and it remains uncertain how much influence they are able to exert as external members of the board. Still, experts view this as a positive step.
"Companies failed to follow through with diversity calls on a voluntary basis. So Korea was late to join the global trend for diversity, but regulations that require this have now been set up. This is a step forward," said Oh Il-sun, director of the Korea CXO Institute.
Oh has been compiling reports on female executive ratios at Korea's top firms since 2014.
"At this point, the influence a newly-appointed board member can exert may be limited, but the appointment is meaningful in that the engine has now been switched on. This will serve as a starting point for the atmosphere at formerly male-dominated boards to change," he said.
Fostering female leaders
The appointment of female board members ahead of the regulatory revision was a challenge for corporations due to a limited pool of candidates. The appointed external directors mainly came from academia, given there are few women who are corporate executives or figures in the government.
In order to address this problem and ensure that corporations have a qualified pool of female executives for board members in the coming years, companies need to ensure that women continue to account for a substantial percentage of the upper management workforce.
Data from the CXO Institute shows that only one in four employees at Korea's conglomerates are female. Oh attributed this to Korea's major companies being centered on manufacturing, for which on-site engineers and research positions account for the majority of top-level job positions.
Men have traditionally filled these positions because males have mainly opted for engineering majors. The percentage of women at the recruiting level has grown substantially over the years, but the percentage of female employees remains low because of women who opt to leave when they have children.
"Two major efforts need to be made: one is to increase the number of women that major in engineering and the second is for companies to play a proactive role in fostering female managers and leaders within the organization," Oh said.
This is also necessary from a labor market point of view. Korea's workforce is shrinking, as the country has become an aging society with a low birthrate. Invigorating the slowing economic growth is an important task.
The ECB's Lagarde said at a conference in Seoul in 2017 that a rise in the percentage of women in Korea's workforce could boost the country's GDP growth by up to 10 percent.
Why better gender representation matters
Better gender representation is not just a matter of achieving gender equality on an ethical level. Companies are increasingly adopting this as they align themselves to ESG trends because it makes sense from a business perspective.
A 2020 McKinsey report states the relationship between diversity on executive teams and the likelihood of financial outperformance has strengthened over time, based on an analysis of more than 1,000 large companies in 15 countries.
"The bottom line is that diversity ensures a diverse pool of thought and a reflection of the diversity among consumers they are targeting. This results in greater profits, which is what matters for companies," said Kim Sang-kyung, who heads the Korea International Finance Institute and doubles as chairwomen of the Korea Network of Women in Finance.
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