[Who Picks the Bank CEO] ①As 'Imperial Chairmen' Are Kept in Check, Board Influence Grows

Following Shinhan and Hana, KB and Woori Begin Selection Processes in September
Race for CEO Positions at the Five Major Banks Gains Momentum
FSS Calls for Substantive Role of Bank Selection Committees
Concerns Mount Over Erosion of Holding

With the Chuseok holiday now over, the race is heating up to select the new CEOs of Korea’s five major banks, as all of their year-end terms approach expiration. Amid calls from financial authorities for merit-based appointments and enhanced independence in the selection process, attention this year is focused not only on who becomes the next bank CEO, but also on who is responsible for appointing them. While there is a recognized need to curb the considerable influence wielded by the “imperial” chairmen of financial holding companies, some have expressed concern that within the holding company structure, this could diminish the personnel authority of the holding company itself, allowing the boards of subsidiary banks to wield disproportionate influence.

According to the financial sector on September 29, KB Financial Group and Woori Financial Group are scheduled to begin procedures for appointing CEOs of their subsidiaries, including bank CEOs, no later than tomorrow. This aligns with best practices recommended by financial regulators, which stipulate succession procedures must commence at least three months prior to term expiration. Shinhan Financial Group and Hana Financial Group have already begun the selection process.

The main variable this year is the financial authorities’ demand for improved corporate governance. Before the Chuseok holiday, Lee Chanjin, Governor of the Financial Supervisory Service, summoned the leaders of the eight major financial holding companies, urging them to exclude factional and personal relationships and to base subsidiary CEO appointments on merit. In particular, he emphasized that holding company CEO Candidate Recommendation Committees (Jachuwi) must provide sufficient information—including a standing pool of CEO candidates—to the Candidate Recommendation Committees of subsidiaries (Imchuwi), and that opinions of the Imchuwi members must be reflected during evaluations, thereby guaranteeing their substantive role. This renewed emphasis on transparency and fairness in the succession process comes just a week after authorities called for granting candidate recommendation rights to subsidiaries’ candidate committees.

This reflects the financial authorities’ concerns that, until now, holding company chairmen have built “entrenchments” by placing close associates as outside directors, thus exerting significant influence over CEO appointments at subsidiaries and rendering candidate discovery and vetting largely procedural. There are also concerns about “Kingmaker” management styles, wherein retired chairmen continue to exert power through hand-picked successors. Even with a subsidiary-level candidate committee in place, it has been pointed out that these committees have often simply endorsed candidates preselected by the holding company.

In response to the regulators’ demands, the major financial holding companies are revising their executive appointment processes, strengthening the role of the subsidiary Candidate Recommendation Committees. The current round of bank CEO appointments is expected to serve as the first real test for whether improved selection procedures will translate into actual change in business practices.

Some in and outside the financial sector argue that reining in the excessive power of holding company chairmen and adjusting the allocation of appointment authority between holding companies and subsidiary boards are distinct issues.

In Korea, most banks are wholly owned by financial holding companies. Advocates claim that, since holding companies set groupwide strategy, manage capital and risk, and are responsible for operational results, they must play a certain role in appointing the key executives of their core subsidiaries. In particular, choosing a CEO who aligns with the holding company’s management direction is inevitable, especially when the bank is the most significant subsidiary in terms of group weight.

One financial industry official said, “It’s not a problem for the holding company and the bank board to exchange their views. The chairman uses their authority to set the group’s direction, but it’s the bank CEO who is responsible for execution. Naturally, the chairman would want a CEO who can work well with them.” The official continued, “The real challenge is that the voice of the holding company often becomes just the voice of one chairman. Realistically, it’s difficult to institutionally block the chairman from exercising influence outside of formal channels.”

Even if the authority of the bank’s candidate committee is strengthened, it remains uncertain whether this will ensure true independence. Even if candidate recommendation rights are granted and the candidate pool is expanded through external consulting firms or headhunters, critics argue that unless the fundamental structure—in which the bank committee recommends candidates and the holding company committee makes the final selection—changes, little substantial progress can be expected.

Another financial sector source said, “Whether the candidate is recommended by the bank or the holding company, using external consultants or headhunters does not make a fundamental difference. If the final decision is made in much the same way as before, the extra procedures could become little more than a formality.”

On the other hand, there are concerns that continuously strengthening the power of the bank candidate committees could excessively amplify the personnel influence of outside directors. The recent unexpected result in the KB Financial Group chairman selection process, where current chairman Yang Jonghee failed to secure another term, has ignited controversy over the growing influence of outside directors.

As the authority to identify, vet, and recommend CEO candidates grows, there is speculation that those included in the CEO pool may focus on managing relationships with outside directors who sit on the candidate committee, leading to a new form of “queueing up” for positions. In the Korean financial sector, the pool of potential outside directors is already limited due to rules restricting multiple board positions, so with increased authority comes concern over how to ensure their expertise and independence as well as how to assign responsibility for appointment decisions.

Ultimately, those in and outside the industry believe that checking the personal influence of chairmen and restricting the overall appointment and succession functions of financial holding companies are separate matters. The balance must be struck between guaranteeing the independence of subsidiary boards and allowing holding companies to develop and allocate group talent.

A senior financial sector official stated, “It’s important to carefully consider what constitutes an ideal succession framework for holding company subsidiaries. However, it’s neither correct nor practical for financial authorities to rigidly define or standardize these processes. Fundamentally, management should be judged on results, and a culture of transparent and fair succession should take root in the financial industry as a whole over time.”

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