Review of Special Resolutions at Shareholders' Meetings for Financial Holding Chairmen's Third Consecutive Term

The Financial Supervisory Service (FSS) has decided to strengthen verification procedures, including reflecting shareholders' evaluations, on the long-term reappointment of financial holding and bank CEOs. To prevent the decline in board independence due to long-term reappointments of CEOs and directors, the introduction of an 'appropriate term policy' for directors is also being pursued.

Kim Byeong-chil, Deputy Governor in charge of banks and small finance at the FSS, held a briefing at the headquarters in Yeouido, Seoul, on the 27th and announced the 'Achievements and Future Plans for Advancing Governance of Bank Holding Companies and Banks.'

The FSS announced exemplary governance practices in December 2023, following controversies over 'self-reappointment' and 'emperor reappointment' regarding the governance and CEO selection procedures of financial holding companies and banks. Since then, the banking sector has autonomously incorporated these exemplary practices into their internal regulations and reorganized related organizations and systems according to their characteristics.

The FSS evaluated that there have been achievements such as the systematization of CEO succession procedures and the regularization of meetings between supervisory authorities and outside directors following the introduction of exemplary practices. However, it was judged that improvements are needed in CEO succession, and the collective integrity and independence of the board.

In response, five detailed supplementary and expansion items were set and pursued: △Early activation of comprehensive succession programs △Strengthening verification procedures for long-term CEO reappointments △Expanding the use of external institutions for CEO and director evaluations △Incorporating digital governance into exemplary practices △Establishing communication plans for subcommittees and individual directors.

First, it plans to induce the earlier activation of comprehensive succession procedures for bank CEOs. Currently, the banking sector initiates the succession process 'at least three months before the CEO's term expires,' but it is evaluated that there is a lack of programs to nurture CEO candidates early and a lack of linkage with the final selection process. 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.

Verification procedures for the appropriateness of long-term CEO reappointments will also be strengthened. Deputy Governor Kim particularly emphasized, "Considering the influence of the incumbent CEO, if there is a long-term reappointment, it is necessary for the financial sector to consider ways to strengthen the appointment process by shareholders to secure legitimacy."

The FSS plans to refer to cases such as Woori Financial Group and POSCO Holdings, which have raised the third consecutive reappointment of CEOs, previously a matter of ordinary resolution, to a special resolution at shareholders' meetings. A special resolution at a shareholders' meeting requires the attendance of more than one-third of all shareholders and the approval of more than two-thirds of attending shareholders. This is a higher threshold than an ordinary resolution, which requires the attendance of more than one-fourth and the agreement of more than half.

An appropriate term policy for directors will also be prepared in consultation with the financial sector. The FSS plans to review ways to weaken the influence of the incumbent CEO on the board and enhance the independence of the board by varying the terms of directors, such as staggered terms or differentiated term assignments.

sjmary@fnnews.com Seo Hye-jin Reporter