[Independent Directors Under Scrutiny]③Only 1 Dissent Among 168 Agenda Items... Why Are Financial Holding Company Independent Directors Seen as 'Rubber Stamps'?

100% Approval Rate for Agenda Items at the Four Major Financial Holding Company Boards

Despite Top Ratings for Most Outside Directors, Little Evidence of CEO Oversight

Oversight Role Missing... Appointment and Reappointment Structure Undermi

Editor's Note
With the revision of the Commercial Act, outside directors have now been given the new title of "independent directors." Companies are handing over the board chair positions, traditionally held by controlling shareholders, to outside directors, and financial holding companies are also emphasizing stronger board independence. However, simply changing names and formalities does not mean the checks and balances function will automatically take effect. In the boards of major conglomerates, dissenting opinions from outside directors remain rare, and even the boards of financial holding companies are not free from criticism that they merely rubber-stamp the decisions of chief executive officers (CEOs). For outside directors to achieve true independence, structural changes such as diversifying the nomination process, granting substantive authority, improving evaluation and disclosure systems, and strengthening legal accountability are required. This article examines the current state of board operations in both the industrial and financial sectors and discusses the challenges that must be addressed for the outside director system to become a meaningful check-and-balance mechanism beyond mere formality.

According to disclosures, only one agenda item received a dissenting vote at the boards of the four major financial holding companies last year. Despite a series of financial incidents in recent years, such as improper bank loans and the incomplete sales of equity-linked securities (ELS) tied to the Hong Kong H Index (Hang Seng China Enterprises Index, HSCEI), the role of outside directors (now called independent directors under the amended Commercial Act) in monitoring and checking management has become increasingly important. Nevertheless, critics argue that boards still serve as rubber stamps, merely approving management decisions.

100% Approval Rate for Board Agenda Items at the Four Major Financial Holding Companies...Outside Directors Receive 'A Grades'

On June 14, according to the "2025 Annual Report on Governance Structure and Remuneration System" disclosed by KB Financial Group, Shinhan Financial Group, Hana Financial Group, and Woori Financial Group to the Korea Federation of Banks, the four major financial holding companies held a total of 51 board meetings last year, during which they reviewed and resolved 168 agenda items.

Of these, only one item received a dissenting vote. Out of 168 items, 167 were passed unanimously, and the sole dissent was on KB Financial Group’s agenda for share buyback and cancellation. However, even this item was ultimately approved, resulting in a 100% approval rate for board agenda items at the four major financial holding companies last year.

An official at one of the financial holding companies explained, "Board agenda items are thoroughly reviewed through prior discussions before being submitted. Therefore, a lack of dissenting votes does not necessarily mean the board simply follows management’s decisions."

However, the 100% approval rate raises questions about whether the checks and balances function of outside directors is being exercised in substance. Even so, evaluations of the directors were overwhelmingly at the highest or next-highest level.

KB Financial Group gave all seven of its outside directors the highest grade of "Excellent" last year. Shinhan Financial Group and Hana Financial Group also awarded all nine of their outside directors either "Excellent" or "Above Expectations." Woori Financial Group likewise rated all seven of its outside directors as "Outstanding" or "Excellent."

This evaluation system relies mostly on internal assessments. KB Financial Group and Shinhan Financial Group do not conduct external evaluations for their outside directors, while Hana Financial Group uses an internal evaluation system but outsources the assessment work to an external agency. Only Woori Financial Group assigns 30% of the total evaluation to an external evaluation agency.

Financial holding companies, including KB Financial Group, argue that there is no credible and objective external evaluation agency available. However, with most outside directors receiving the highest ratings, there is significant criticism that the current evaluation system lacks effectiveness.

As the evaluation of outside directors is largely formal, there have been virtually no cases where directors have been replaced as a result of evaluation outcomes. An analysis of the reasons for replacing outside directors at the four major financial holding companies last year shows that most replacements were due to the expiration of legally defined terms, and not a single case was due to evaluation results.

Not Only Failing to Check the CEO, But Supporting Their Reappointment..."Boards That Fail to Provide Oversight Should Also Be Held Accountable"

The methods of appointment and the term structures are cited as reasons for weakening the independence of outside directors. In financial holding companies, the CEO effectively appoints individuals close to themselves as outside directors, and once appointed, these directors usually serve for two years and can be reappointed annually for up to six years. Since the possibility of reappointment is under the CEO’s influence, it is argued that it is difficult for outside directors to maintain their independence. In contrast, outside directors at regular companies serve three-year terms and may be reappointed once.

In particular, outside directors at financial holding companies are often criticized for acting as shields for CEO reappointments rather than providing oversight of management. In practice, the Executive Nomination Committee (Nomination Committee), consisting of outside directors, recommends CEO candidates and decides on their reappointment. This abnormal structure, in which outside directors who should be monitoring the CEO actually support the CEO's reappointment, highlights the vulnerability in the governance structure of financial holding companies.

The financial authorities' consideration of so-called "Three-Term Limit Law for Financial Holding Company CEOs" and other "drastic measures" is not unrelated to the persistent controversy over board independence, even if it is separate from the appropriateness debate.

Recently, in the business world, there has been a movement to strengthen board structures centered on independent directors in line with the revised Commercial Act. Although financial holding companies have already appointed outside directors as board chairs and operate various committees such as the Nomination Committee, the reality is that the oversight function of outside directors is not being exercised in substance.

Experts emphasize that in order to prevent outside directors from becoming mere rubber stamps, board evaluations and accountability must be significantly strengthened. In particular, they point out that if a CEO is sanctioned by the financial authorities due to a major financial incident or an internal control failure, there should be measures to hold the entire board accountable for failing to provide adequate oversight.

Lee Hyoseop, Head of the Financial Industry Division at the Korea Capital Market Institute, stated, "Currently, within the governance structure of financial holding companies, only the board chair is responsible for internal control issues, while outside directors on the Nomination Committee who are involved in CEO appointment and reappointment are excluded. The system should be improved so that outside directors are held accountable if they fail to recommend or appoint independent and capable CEOs or fail to properly oversee management."

A former high-ranking official at the financial authorities added, "The authority and responsibility of outside directors should be expanded together to enable them to fulfill their oversight role in substance. System improvements are needed to establish appointment structures and evaluation systems that guarantee independence."

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