Advisory Case on the Necessity of a Board Resolution for an Advisory Agreement with a Former Representative Director

1. The Client's Situation

The client was considering concluding an advisory agreement with its long-serving former representative director, after his retirement, for the purpose of obtaining advice on the company's management as a whole. However, there was no clear internal standard as to whether such an advisory agreement could be concluded by the representative director's sole discretion or whether it necessarily had to go through a resolution of the board of directors. In particular, since this was a contract accompanied by the payment of an advisory fee, concerns were raised that issues regarding the validity of the contract or the liability of the representative director might arise in the future.

Your Legal Team comprehensively reviewed the provisions of the Commercial Act, the articles of incorporation, and the board regulations, and provided advice centered on the point that an advisory agreement with the former representative director was highly likely to constitute "important business execution of the company." We explained that, unlike an ordinary external advisory agreement, an advisory agreement with a former representative director is closely connected with the company's governance structure, compensation policy, and management continuity, and that it is therefore procedurally appropriate to go through a board resolution. In addition, we explained the legal risks-such as denial of the contract's validity, return of unjust enrichment, and the representative director's liability for damages-that could arise if the contract were concluded by the representative director's sole discretion without a board resolution.

Based on the advice, the client clearly established that the conclusion of the advisory agreement was a matter for a board resolution and put its internal decision-making procedures in order. Through this, it blocked in advance the uncertainty regarding the contract's validity and established a structure for managing the representative director's personal liability risk as well. As a result, it achieved the outcome of establishing internal standards that can be referred to when concluding similar executive compensation and advisory agreements in the future.

As in this case, the compensation and advisory structures following an executive's retirement can lead to serious legal disputes even from small procedural differences. Your Legal Team supports the stability of corporate decision-making through advice on reviewing the necessity of board and shareholder-meeting resolutions, designing executive compensation structures, and inspecting governance-structure risks.