Bank Holding Company Chairs Face Higher Bar for Third Consecutive Term... "75% Rule" Introduced at Shareholder Meetings [Governance Improvement]

Reappointment Requires 67% Approval; Third Consecutive Term Requires 75%

Approval Requirements for the CEO Candidate Recommendation Committee Also Tightened

Effectiveness Questioned as Reappointment Approval Rates Have Already Hovered Around

Going forward, a bank holding company chairman seeking reappointment must secure the support of at least two-thirds of the voting rights represented at the shareholders' meeting. To win a third consecutive reappointment, the chairman must secure at least three-quarters. The financial authorities have decided to introduce what is being called the "75% rule" for a third consecutive reappointment to curb bank holding company chairmen's "self-perpetuating reappointments" and long-term grip on power. Rather than legislate a ban on third consecutive reappointments, as initially considered, the government has decided to strengthen the checks exercised by shareholders and the Executive Candidate Recommendation Committee.

75% Shareholder Approval Required for Third Consecutive Reappointment... Questions Over Effectiveness

On November 12, the Financial Services Commission and the Democratic Party of Korea held a consultative meeting between the government and ruling party and announced the "Plan to Improve the Governance of Financial Companies." The announcement came about 11 months after the FSC and the Financial Supervisory Service began work on governance reform, following President Lee Jae-myung's criticism last December that long-term CEO reappointments at financial companies created a "corrupt inner circle."

The core of the plan is to gradually tighten the requirements for approval by the Executive Candidate Recommendation Committee and shareholders during the appointment and reappointment of bank holding company chairmen, where ownership is dispersed and there is no controlling shareholder. The aim is to curb the practice of incumbent chairmen filling their boards with close associates, entrenching themselves and creating conditions favorable to long-term reappointments.

First, the plan raises the threshold for the committee to recommend a CEO candidate. Currently, a candidate can be recommended with the support of a majority of committee members present. Going forward, candidates will need the support of at least two-thirds of all committee members for their initial appointment and at least three-quarters for a second consecutive reappointment or later.

The shareholder approval requirements will also rise according to the number of reappointments. Currently, appointment or reappointment is possible with the support of a majority of the voting rights represented at the meeting and at least one-quarter of all issued shares. Going forward, reappointments will require the support of at least two-thirds of the voting rights represented and one-third of all issued shares. From a third consecutive reappointment onward, the required support will rise to at least three-quarters of the voting rights represented and one-half of all issued shares, respectively. The current shareholder meeting approval requirements will remain in place for initial appointments.

The FSC plans to draft amendments to the Act on Corporate Governance of Financial Companies by the end of this year to strengthen these approval requirements. It is uncertain whether the bill will pass by year-end, but the changes are expected to take effect about six months after passage, following revisions to the enforcement decree and other measures.

"Long-term reappointments are not inherently bad, but long-term reappointments enabled by entrenchment are undesirable," said Jeon Yoseop, director general of the FSC's Financial Policy Bureau, explaining the rationale for tightening the committee and shareholder approval requirements.

However, it remains uncertain whether raising the threshold at shareholder meetings alone will provide an effective check. This year, Jin Ok-dong, chairman of Shinhan Financial Group, received 88.0% support for his reappointment; Lim Jong-ryong, chairman of Woori Financial Group, received 99.3%; and Bin Dae-in, chairman of BNK Financial Group, received 91.9%. Since the chairmen are already receiving overwhelming support at shareholder meetings, some say the 75% rule, which applies from a third consecutive reappointment onward, may have limited effectiveness.

The financial authorities initially also considered legally prohibiting bank holding company chairmen from being reappointed for a third consecutive term. However, some within the FSC urged caution about directly limiting the number of reappointments by law, while opposition was also raised within the ruling party. As a result, the authorities decided to tighten approval requirements rather than ban reappointments outright.

Succession Process to Begin Six Months Before Chairman's Term Ends... More Competition for External Candidates

The CEO succession process will also be overhauled. The financial authorities plan to encourage companies to begin the process at least three months before the date for selecting the final candidate for the next CEO, or six months before the incumbent CEO's term ends. The move aims to improve a succession process that has operated in ways favorable to incumbent CEOs. In fact, a special inspection of eight bank holding companies by the FSS found that some companies required external candidates to submit applications within five business days, leading many candidates to withdraw from consideration.

Non-financial factors, including social controversies such as financial incidents and records of sanctions by financial authorities, will also be taken into account when evaluating CEOs. Previously, evaluations focused on abstract criteria such as integrity, professional expertise and organizational management skills. The plan will restrict arbitrary changes to evaluation criteria while the succession process is underway and strengthen disclosure of evaluation results.

External candidates will be notified of their inclusion on the long list, the initial pool of candidates, from the stage when the list is finalized. After the short list of final candidates is finalized, they will be given at least one month to prepare. The plan will also improve transparency in candidate pool management by requiring boards to regularly review the pool of potential CEO candidates and record and disclose the selection criteria and nomination channels. It will also pursue a plan to include CEOs of major affiliates with large asset bases or net income in the standing pool of candidates.

In addition, reasonable compensation standards will be established and disclosed when former CEOs or executives are appointed as advisers. Disclosure of advertising expenditures will also be strengthened to discourage excessive spending on advertising to secure the incumbent CEO's reappointment.

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