Serving as a director of a Korean company carries real personal exposure. Foreign executives appointed to the board of a Korean subsidiary sometimes assume their role is nominal, but the Korean Commercial Act imposes genuine duties, and breaching them can lead to liability toward the company and, in some cases, toward third parties.
The Duties Korean Law Imposes
Directors owe a duty of care to manage the company's affairs as a prudent manager would, and a duty of loyalty to act in the company's interest rather than their own. These translate into concrete obligations: avoiding undisclosed conflicts of interest, refraining from competing with the company without approval, not exploiting corporate opportunities for personal gain, and ensuring the company complies with applicable law.
Self-dealing and related-party transactions are a particular focus. Such transactions generally require board approval, and a director who pushes through an unapproved or unfair related-party deal can be held responsible for resulting loss. Directors are also expected to maintain reasonable oversight; passivity is not a defense where a director should have known of and prevented wrongdoing.
When Personal Liability Attaches
A director who breaches these duties may be liable to compensate the company for the loss caused. Where multiple directors are involved, liability can be joint. Beyond liability to the company, directors can in defined circumstances face liability to third parties, for example where gross negligence or intentional misconduct in their duties causes harm. In serious cases, conduct such as breach of trust can carry criminal exposure under Korean law, separate from civil liability.
This landscape is why directors' and officers' (D&O) liability insurance is widely used. A well-structured D&O policy can fund defense costs and indemnify covered liabilities, but coverage has exclusions, and intentional wrongdoing is typically not covered. Indemnification arrangements with the company and the parent should be reviewed alongside the policy.
What to Do to Manage the Risk
Understand the scope of your duties before accepting a board seat, and ensure board minutes accurately record your participation and any dissent, since a documented objection can be important if a decision is later challenged. Insist on proper approval procedures for related-party transactions. Confirm that adequate D&O coverage and a clear indemnification agreement are in place, and review their exclusions.
A frequent question is whether a non-executive or nominee director can avoid liability; merely holding the title without active involvement does not automatically shield you, because oversight duties still apply. Another is whether the parent company can fully indemnify a director, which is possible by contract but does not override liabilities the law assigns personally.
Understanding and managing director liability protects both the executive and the business. Attorney Sangbin Min advises foreign directors and companies on duties, governance procedures, related-party transactions, and D&O risk in Korea. We invite you to consult our office before issues arise.