[Editorial] Outside directors at financial holding companies still acting as rubber stamps

Outside directors at Financial Holding Companies (FHCs) are still facing criticism for acting as mere "rubber stamps" for management. An investigation by this newspaper into the activities of outside directors at the eight major financial holding companies from 2022 to 2024 showed that only three out of 885 board resolutions (0.3%) drew opposing votes. In effect, outside directors are neglecting their duty to keep management in check and to offer objective, expert opinions on key agenda items.
This situation stems from a tacit arrangement in which chief executives and outside directors, whose terms overlap, effectively guarantee one another’s tenure, preventing boards from fulfilling their original role. Even when contentious items arise, they are often pre-coordinated through advance briefings, creating an atmosphere in which it is difficult for dissenting views to surface at the actual board meeting. Above all, many boards are filled with individuals who lack financial expertise, which structurally limits the possibility of rigorous professional scrutiny from the outset.
With outside directors functioning as rubber stamps, it is hard to detect in advance the risks faced by financial institutions, whose core mandate is soundness management. In one real case, a major bank was criticized in 2020 for failing to follow proper decision-making procedures when it provided 200 billion won in liquidity to its banking subsidiary in Indonesia. At another financial firm, a wrongful loan involving a former chair’s relative was not reported to the board in a timely manner, delaying follow-up measures. These cases illustrate what can happen when boards fail to perform their proper function.
These problems also reflect the rigid structure of financial holding company boards more broadly. The boards of domestic financial holding companies differ markedly from those of typical listed companies. According to an analysis by a corporate research institute of the specialties of newly appointed outside directors at major companies this year, the share of experts in technology rose to 20.7%, up 4.5 percentage points from a year earlier. There was also a clear trend of more appointees from the business community and fewer from the bureaucracy. While companies pushed into fierce global competition are actively embracing advice grounded in technological expertise and on-the-ground experience, financial holding companies need to ask themselves whether they remain too reluctant to accept uncomfortable but necessary criticism.
Today’s financial market is becoming ever more competitive due to digital transformation and the entry of big tech firms into finance. Companies that fail in internal control risk losing consumer trust and even undermining their very basis for existence. If financial holding companies remain complacent with stable income structures such as interest margins and turn their backs on innovation, they will find it hard to secure their future.
Financial authorities are currently reviewing measures to strengthen independence, including separating the terms of chief executives and outside directors. Such institutional improvements are essential, but they are not sufficient on their own. Alongside independence, mechanisms are needed to meaningfully enhance the diversity and expertise of board composition. Regulators must go beyond checking formal requirements and instead continuously assess the effectiveness of board operations, while establishing a practice of holding those responsible to account when problems arise. Financial holding companies, for their part, must recognize governance reform as a core task for boosting competitiveness. Only when outside directors fully perform their roles in oversight and innovation will the competitiveness of the financial industry truly be revitalized.