Lee Chan-jin, Governor of the Financial Supervisory Service, to have breakfast with financial holding company chairmen on the 23rd... "Discuss reviewing bank president appointment procedures"

[Financial News] Lee Chan-jin, Governor of the Financial Supervisory Service (FSS), will hold a breakfast meeting with the chairmen of major financial holding companies on the 23rd. With KB Financial Group Inc. Chairman Yang Jong-hee effectively failing to secure a second term, the meeting marks a direct encounter between the head of the regulatory authority and the industry's top executives amid various interpretations regarding measures to modernize corporate governance in the financial sector. It is speculated that the FSS will convey its advice regarding the appointment procedures for the presidents of the four major banks, whose terms expire at the upcoming year-end.
According to the financial industry on the 15th, Lee Chan-jin, Governor of the Financial Supervisory Service, will hold a breakfast meeting with the chairmen of major financial holding companies on the 23rd. The FSS sounded out the major financial holding companies that day regarding their willingness to attend.
During an executive meeting this morning, Lee Chan-jin pointed out issues with the appointment procedures for subsidiaries within financial holding companies. He noted that chairmen of financial holding companies are engaging in a "sharing the spoils" style of appointing subsidiary CEOs. Lee Chan-jin pointed out, "Management succession procedures for numerous subsidiary CEOs, including bank presidents, are scheduled to proceed by the end of the year, but the succession procedures established by the subsidiary CEO nomination committees of most financial holding companies are inadequate." He further noted, "The role of the subsidiary executive nomination committee is also understood to be limited," and instructed officials to "further strengthen transparency and fairness throughout the CEO succession process, including candidate selection, verification and evaluation, and record-keeping."
The Financial Supervisory Service is taking issue with the holding companies' nomination committees for CEOs for failing to specify qualification requirements. The view is that current regulations, which provide only abstract definitions, exacerbate the lack of transparency in the appointment process. Furthermore, the FSS pointed out that minimum verification is not being conducted at each stage to narrow down candidates, and that management of the permanent candidate pool is merely perfunctory. This indicates a failure to comply with Principles 15 and 16 of the current best practices for bank holding company governance.
Principle 15 mandates that the permanent candidate pool be operated in conjunction with pre-established CEO qualifications and that effective development programs be implemented. It requires guaranteeing members of the permanent candidate pool opportunities to attend and speak at board meetings, and arranging board meetings to provide the board with opportunities to evaluate candidates on an ongoing basis.
Principle 16 aims to ensure that the role of the nomination committee is fully guaranteed even when a holding company is involved in the appointment of a bank president. The core of the principle is that the nomination committee of a bank, which is a subsidiary of the holding company, must be provided with information regarding the status of the bank president candidate pool and the progress of the appointment process. In particular, the regulation stipulates that the bank's nomination committee must be able to perform a substantive and appropriate function in the appointment process by representing the bank's stakeholders. The Financial Supervisory Service points out that only a few holding companies are complying with Principle 16.
Various speculations are emerging in the industry regarding the meeting between Lee Chan-jin and the holding company chairmen immediately after he publicly criticized the succession procedures for subsidiary CEOs of financial holding companies.
A source in the financial sector interpreted this as "Lee Chan-jin directly expressing his determination ahead of the year-end personnel reshuffle, given that he has consistently pointed out the so-called 'inner circle problem' regarding consecutive terms in the financial sector."
At the end of this year, the terms of CEOs at 56 out of a total of 69 affiliates, including holding companies, of the five major financial groups—approximately 81%—will expire. Excluding holding companies, the leadership of 55 out of 64 subsidiaries—approximately 86%—could be replaced.
In particular, the terms of the presidents of all five major banks expire within the year. Not only Shinhan Bank President Jung Sang-hyuk, who served for four years, but also KB Kookmin Bank President Lee Hwan Ju, Bank of Hope President and CEO Lee Ho-sung, Woori Bank President Jin-owan Jung, and Nonghyup Bank President Kang Tae-young will all see their terms conclude at the end of this year.
As the government and the National Assembly continue to take time coordinating their views on a reform plan for the governance of financial companies, the Financial Supervisory Service appears to be rushing to improve governance by utilizing existing best practices and its supervisory authority. Previously, President Lee Jae Myung also strongly criticized the governance practices of financial companies, stating, "If left unchecked, a corrupt 'inner circle' emerges, allowing a small minority to take turns exercising control as they please."

[email protected] Park Mun-su Reporter