Authorities Move to Block 'Self-Reappointment' of Bank CEOs, Introduce Special Shareholders' Resolution for 3rd Term

[Financial News] Financial authorities are pushing to block the 'self-reappointment' of financial holding companies and banks, enhance the independence of the board of directors, and introduce shareholder control procedures. Measures such as introducing an appropriate term policy for board directors and elevating the process to a special resolution at the shareholders' meeting if the head of a financial holding company or bank serves a third term are being discussed.
The Financial Supervisory Service announced on the 27th the 'Bank Holding Company, Bank Governance Advancement Achievements and Future Plans'. It has been about a year and a half since the best practices for financial holding companies and bank governance were established. 
The Financial Supervisory Service analyzed international standards and domestic and international best practices and announced the best practices for governance in December 2023, after controversies such as 'self-reappointment' and 'emperor reappointment' continued regarding the governance and CEO selection procedures of financial holding companies and banks. Subsequently, the banking sector is autonomously implementing the best practices by reflecting them in their internal regulations according to their characteristics and reorganizing related organizations and systems.
The Financial Supervisory Service evaluated that after the introduction of best practices, there were achievements such as △systematization of CEO succession procedures △enhancement of collective alignment of the board of directors △strengthening the objectivity of the outside director evaluation system △establishment of the support system for outside directors △regularization of meetings between supervisory authorities and outside directors.
A representative of the Financial Supervisory Service said, "Through principle-based best practices, the banking sector has established a foundation for advancing governance by establishing and promoting a governance improvement roadmap tailored to each company's size, management strategy, and risk profile," and "In addition, through regular meetings between supervisory authorities and the board of directors, major issues were discussed in a timely manner, leading to increased awareness of the supervisory direction and the role of the board of directors."
However, the Financial Supervisory Service emphasized that there is a need for improvement in areas such as CEO succession, collective alignment, and independence of the board of directors. CEO succession begins at least three months in advance according to best practices, but there is an evaluation that the early discovery, development, and evaluation program for the candidate pool is still insufficient, and there is a lack of connectivity with the final selection process. 
To this end, △early activation of a comprehensive succession program △strengthening verification procedures for long-term CEO reappointment △expanding the use of external agencies in CEO and director evaluations △reflecting digital governance in best practices △establishing communication plans for subcommittees and individual directors, etc., five detailed supplementary and expansion items will be set and promoted.
In particular, they plan to strengthen the verification procedures for long-term CEO reappointment. There has been consistent criticism that the practice of sharing terms between the CEO and the board of directors, utilizing the characteristics of financial holding company governance without an owner, has taken root, allowing the CEO to succeed in reappointment without verification procedures and even designate a successor.
To this end, the Financial Supervisory Service plans to consult with financial holding companies and banks on measures to prepare an appropriate term policy for directors to enhance the independence of the board of directors. Staggered terms, differentiated term grants, and evaluation linked to BSM upon expiration of outside director terms and new appointments are being discussed.
They also plan to discuss with the financial sector the introduction of procedures that allow shareholders to control the long-term reappointment of CEOs. Currently, Woori Financial Group, POSCO Holdings, and KT are implementing procedures to elevate to a special resolution at the shareholders' meeting for the third reappointment of the CEO. 
They are also promoting the expansion of the use of external agencies in CEO and director evaluations. To this end, they plan to analyze evaluation methodologies suggested by international organizations such as the OECD and share them with the banking sector. 
In addition, they plan to encourage financial holding companies and banks to activate comprehensive succession procedures earlier than now by referring to overseas cases. In fact, the New York Stock Exchange (NYSE) governance guidelines specify that it is ideal to start the succession process from the beginning of the CEO's term. Switzerland's largest financial institution UBS confirmed the shortlist of the successor to the CEO whose term expires in 2027 in May last year and began a three-year succession preparation. 
In addition, they plan to newly promote various board communication plans, such as discussing best practice plans related to digital governance, enhancing the collective alignment of the board of directors related to digital, and operating subcommittee meetings and individual director interviews by specialty. 





sjmary@fnnews.com Seo Hye-jin Reporter