Bank holding company chairs face curbs on “self-reappointment”; third terms require 75% approval at shareholders’ meetings

[Financial News] The Democratic Party of Korea and the government agreed on the 12th to raise the bar for bank holding company chairs seeking reappointment in stages. The key measure is to require approval from at least 75% of voting rights represented at a shareholders’ meeting and holders of at least half of all issued shares for a third term or later. The committee that recommends candidates for chief executive officer (CEO), the Executive Candidate Recommendation Committee, will consist entirely of independent directors, and shareholder oversight of executive compensation will also be strengthened.
The party and government discussed the “Plans to Improve Financial Company Governance” at the National Assembly that day. The focus was on blocking the practice of “self-reappointment,” in which an incumbent CEO and a board of directors friendly to the CEO support each other’s reappointment. Kwon Chil-seung, the Democratic Party’s policy committee chair, said, “We will return authority concentrated in the hands of one CEO to the board and shareholders, and enable the market, including institutional investors, to keep itself in check.”
The proposed reforms set different shareholders’ meeting voting requirements according to the number of times a bank holding company CEO has been reappointed. Under current rules, the general requirement for electing a director at a shareholders’ meeting is approval by a majority of the voting rights represented and by holders of at least one-quarter of all issued shares. The proposal applies the same standard to an initial appointment.
To begin a second term through a first reappointment, a candidate must secure approval from at least two-thirds of the voting rights represented at a shareholders’ meeting and holders of at least one-third of all issued shares. From a third term onward, following a second reappointment, the thresholds rise to at least three-quarters and one-half, respectively. This means that each successive reappointment will require broader shareholder support.
The requirements for candidate recommendations by the Executive Candidate Recommendation Committee will also be tightened. For an initial appointment of a bank holding company CEO, at least two-thirds of the committee’s total membership must approve; for a reappointment, at least three-quarters must vote in favor for the candidate to be recommended.
The party and government agreed to make the committee that recommends CEO candidates consist entirely of independent directors and to strengthen the rules to prevent an incumbent CEO from improperly intervening in the committee’s work or the management succession process.
They will also encourage shareholders to nominate director candidates. They will support institutional investors and others in nominating independent director candidates and expand shareholder participation through shareholder meetings and disclosures of nomination channels. They also plan to require meetings among independent directors and strengthen the keeping of board meeting minutes and disclosures of directors’ activities.
Executive compensation will be revised to more fully reflect performance and accountability. Under the current enforcement decree, as a general rule, at least 40% of performance-based compensation for executives and others must be deferred for at least three years. The party and government agreed to increase the deferred portion and the deferral period, and to introduce a clawback system allowing already-paid performance-based compensation to be recovered under certain conditions.
They also plan to introduce “say on pay,” under which individual executives’ compensation plans would be explained and reported at shareholders’ meetings. The measure would add an explanation requirement to the existing arrangement, under which shareholders’ meetings approve the cap on total director compensation while the board sets individual compensation, enabling shareholders to assess whether pay is appropriate.
The party and government plan to accelerate discussions on amendments to the Act on Corporate Governance of Financial Companies. Park Sang-hyuk, a Democratic Party lawmaker, said, “This is not a matter of political strife, and there is unlikely to be much disagreement between the ruling and opposition parties,” adding that he would consult with the opposition and push for swift passage. 

[email protected] Kim Hyeong-gu Reporter