The South Korean government has proposed a written guidance on designation of legal chiefs for local companies, for the first time since the implementation of the designation scheme. In the guidance, the government described exercise of dominant power as the key factor in designation of the leaders, which suggests that the person with the greatest power in corporate governance is entitled to become a legal chief even without holding the chairman title or the largest shares in the company.

The proposed guidance will be opened to the public until July 20, according to the Fair Trade Commission (FTC) on Friday.

Determining legal chiefs at companies is of importance in corporate regulation, as the current unfair laws specify regulation subjects based on public relations with legal chiefs, such as their relatives and subsidiaries. Legal chiefs are subject to submission of data and disclosure of filings related to their companies, and punishment for illegal business acitivty.

In accordance with the recent guidance, legal chiefs can be determined by five requirements as follow: whether they are the largest shareholder of a company; the person with the highest position in a company; the person with dominant power of influence; the person conceived as the chief from inside and outside a company; or the person designated as the legal chief under corporate procedures.

To be a legal chief doesn’t need to meet all the five requirements at once. If there is no person who meets the requirements, corporations instead can be designated as legal chiefs, as found in the designation results made by the FTC in April. Out of the 82 companies designed as conglomerates, 10 have their legal chiefs of corporations, not persons. The companies, including POSCO Group and S-Oil Corp., are likely to be former state-run enterprises or Korean units of foreign companies.

FTC Chairman Han Ki Jeong stated that among the five requirements, the one involving dominant power of influence is the most important. “Speaking of Bom Kim, the founder and chairman of South Korea’s e-commerce giant Coupang inc., we found that he meets three of the requirements but were unable to designate him as a legal chief of the company over the concerns about trade conflicts as he is a U.S. citizen,” said Han.

Whether a person exercises dominant influence is determined by whether he or she makes major decisions in corporate governance, including the appointment of executives or investments in new businesses. In addition, a person can be considered the highest-ranking official if no one holds a higher position in the company, even though he or she has no titles such as chairman of the company or chairman of the board.

However, the recent guidance will provide clarity in designation of legal chiefs, without causing any changes in the designation list.

By Lee Jin-han, Chung Seung-hwan, and Han Yubin

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