[Independent Directors Under Scrutiny]④Financial Holding Company Boards Dominated by Professors... Diversified Nomination Channels Needed to Break Free from 'Yes-Man' Image

One in Three Directors at Financial Holding Companies Is a Professor
Regulations on Conflicts of Interest Narrow the Candidate Pool
To Escape Influence from Chairpersons and Regulators, Nomination Channels Must Be Diversified, Including Sharehol

Editor's NoteWith the revision of the Commercial Act, outside directors are now referred to as "independent directors." Corporations are handing over the board chair positions, once held by their owners, to outside directors, and financial holding companies are also emphasizing stronger board independence. However, simply changing the name and structure does not automatically guarantee effective checks and balances. Dissenting opinions from outside directors remain rare on the boards of major corporations, and boards at financial holding companies are still often criticized as mere "rubber stamps" for approving CEOs' decisions. For independent directors to achieve genuine independence, structural changes such as diversifying nomination channels, granting real authority, improving evaluation and disclosure systems, and strengthening legal accountability are needed. This article examines the realities of board operations in industry and finance, and explores what is required for the outside director system to function as a substantial check rather than a mere formality.

There are growing calls that, in order for outside directors at financial holding companies to move beyond being labeled as "yes-men," the nomination channels must be diversified and the current structure—overly concentrated in certain professions—should be addressed. With most outside director nominations and appointments currently processed through internal company systems, there is a high risk that this closed appointment structure will persist. Consequently, there is increased demand to expand candidate discovery channels such as shareholder nominations and institutional investor recommendations, so that a pool of independent outside director candidates not influenced by management can be secured.

According to an analysis by The Asia Business Daily on June 14 of corporate governance reports from Korea's eight major financial holding companies—KB, Hana, Shinhan, Woori, NH Nonghyup, BNK, JB, and iM—among 63 outside directors, 22 (34.9%) were former professors, the largest share. The concentration was even more pronounced at the four largest financial holding companies—KB, Shinhan, Hana, and Woori—where professor backgrounds accounted for 40.6%, highlighting a strong academic bias compared to regional financial holding companies. At Shinhan Financial Group, for example, five out of nine outside directors were professors, making up a clear majority.

This contrasts with the board composition at major U.S. financial institutions. Companies such as JPMorgan Chase, Goldman Sachs, and Citigroup have a higher representation of former CEOs, global corporate executives, and technology firm leaders than professors. In particular, with AI and cybersecurity risks gaining prominence in recent years, these companies have actively recruited relevant experts to their boards.

The dominance of certain professions, such as professors, in outside director appointments is rooted in the unique regulatory environment of the financial sector. Strict limits on business dealings are imposed to prevent conflicts of interest, making it difficult for businesspeople or industry experts with substantial financial experience to join boards. Additionally, restrictions on holding multiple positions have made the outside director role less attractive. As a result, the candidate pool has narrowed, and the practice of appointing professors or legal professionals—deemed relatively "safe" choices—has become entrenched.

The ease of demonstrating expertise is also a reason why professors are favored. Professors in relevant fields such as business administration, economics, law, or accounting can readily explain their expertise to financial regulators during governance assessments or supervisory processes. In fact, domestic financial holding companies cite expertise in law, accounting, risk management, and consumer protection as key criteria when selecting outside directors.

To address the appointment practices overly focused on specific professions, there are calls to diversify the channels for outside director nominations. The current system, where outside directors are effectively recycled through internal networks, limits both the diversity and independence of boards. While the board secretariat handles the practical process of identifying and recommending candidates, the influence of management—especially the chairperson—is inherently present.

Shin Jin-Young, a professor at Yonsei University and former head of the Korea Corporate Governance Service, pointed out, "Ultimately, the system of decisions being made within internal networks keeps repeating. Once appointed, the issues of reappointment come into play, and the same human networks are continuously maintained. That is why the diversity of outside directors is so limited."

Market experts recommend expanding external nomination systems to discover and recommend outside director candidates from outside the board, as a way to break the "inherent rubber-stamp" limitations faced by outside directors.

Professor Shin emphasized, "It is necessary to actively expand institutional investor and shareholder nomination systems," adding that "systemic measures are needed to create a pool of outside director candidates who are fundamentally free from the influence of corporate management." He explained that an independent process where institutional investors recommend candidates could be a practical alternative.

From a diversity standpoint, some suggest that boards should actively recruit at least one or two foreign independent directors with global experience. Namwoo Lee, chairman of the Korea Corporate Governance Forum, who joined BNK Financial Group this year as an independent director through a shareholder nomination system, said, "There are quite a few financial holding companies where foreign shareholders own 50-80%, yet hardly any have foreign independent directors. To strengthen diversity, it is necessary to bring in foreign directors with global experience."

While there are expectations that greater diversity among outside directors will enhance board independence, some argue that the inherent limitations of the highly regulated financial industry make genuine independence difficult to achieve. The Korean financial sector is a regulated industry under the licensing and supervisory system of the authorities, making it hard to escape the policy direction and requirements of the regulators. In particular, key management issues such as dividend policy, inclusive finance, and productive finance are heavily influenced by government policy. As a result, it is difficult for outside directors—who are supposed to prioritize company value and shareholder interests—to openly express opinions that conflict with government policy.

An industry official commented, "The independence of outside directors at financial companies must be examined not only in terms of their independence from CEOs or controlling shareholders, but also from financial regulators. Given the strong influence of government policy on major decisions such as dividends, inclusive finance, and productive finance, we must closely assess whether outside directors are truly making independent judgments."

This content was produced with the assistance of AI translation services.