Remains on the board: outside directors’ behaviour and their survival chance in Korean firms

Korean firms, often represented by a business group or chaebol, have adopted and increased outside directors owing to the government’s initiative for corporate governance reform. However, their monitoring role has been criticized as rubber-stamping. This study extends the literature, which explains outside directors’ ineffectiveness in terms of their focus on advising roles over monitoring ones, by pitting these directors’ behaviours against their roles. It argues that their behavioural characteristics, i.e. proactive versus conformist, affect their chance of survival on the board and subsequently influence firm performance. Analysing both survey and accounting data on 157 outside directors in Korean listed firms, this study finds that outside directors have a lower survival chance when they proactively perform their roles regardless of whether this involves monitoring or advising. However, when they survive, their proactive behaviour increases Tobin’s q. This study further investigates how to improve the lower survival chance for proactive outside directors, and sheds light on the moderating roles of power such as foreign ownership (for firms with higher growth opportunities) and outside directors’ valuable knowledge and experience such as elite MBA degrees (for firms with lower growth opportunity). This study discusses the theoretical and practical implications for outside directors’ behaviour and firm performance as a result of corporate governance reform in Korean firms.