When Will Financial Company Governance Reforms Take Effect?

Financial Authorities Announce "Plan to Improve the Governance of Financial Companies"
It Will Take Time for New Voting Requirements for Financial Holding Company CEO Appointments to Take Effect
Passage of Legal Amendments by Year-End Remains Uncertain
Financial Sector Says It Will Wait for the Amendments to Be Finalized

Financial authorities have proposed measures to strengthen voting requirements at general shareholders' meetings and other procedures to curb the practice of bank holding company CEOs serving long consecutive terms. However, it is expected to take considerable time before the measures are applied to actual chair appointments and reappointments. Some chairs are nearing the end of their terms, while others have terms that run through 2028 or 2029.

According to the financial sector on November 13, among the eight bank holding companies (KB, Shinhan, Hana, Woori, NH NongHyup, BNK, iM and JB), the only ones whose current chairs are nearing the end of their terms are NH NongHyup Financial Group and iM Financial Group, excluding KB Financial Group, which has already finalized its candidate for the next chair. The terms of Lee Chanwoo, chair of NH NongHyup Financial Group, and Hwang Byungwoo, chair of iM Financial Group, run through February and March 2027, respectively. The previous day, financial authorities announced a plan to improve the governance of financial companies, centered on gradually tightening the voting requirements of executive candidate recommendation committees and general shareholders' meetings based on the number of times a bank holding company CEO has been reappointed.

The strengthened voting requirements for CEO appointments and reappointments under the improvement plan are unlikely to apply to NH NongHyup Financial Group and iM Financial Group. Even if the ruling party and government prepare amendments to laws and regulations concerning corporate governance as planned, several months are expected to pass between the legislation's passage and its implementation. The ruling party and government plan to prepare the amendments by the end of this year, but it remains uncertain whether the National Assembly will pass them before year-end. The regular session ends on December 9, and year-end is also a busy period for budget reviews and the passage of various bills.

A Democratic Party of Korea official explained, "The proposed legal amendments stem from President Lee Jaemyung's criticism last year of bank holding company CEOs' long consecutive terms as a 'corrupt inner circle,' so the People Power Party may also come out against them."

Park Hongbae, a Democratic Party of Korea lawmaker on the National Assembly's Political Affairs Committee, also told Asia Business Daily by phone, "The bills currently before the National Assembly do not include all the details of the corporate governance improvement plan announced this time, so additional bills will need to be introduced." He added, "In particular, given the legislative procedures, it will likely be difficult to apply the provisions concerning general shareholders' meetings to meetings in March 2027."

In addition, NH NongHyup Financial Group is unlisted and has a sole-shareholder structure, with the National Agricultural Cooperative Federation holding 100% of its shares. As a result, the impact of strengthened voting requirements at general shareholders' meetings may differ from that at other financial holding companies.

The other six financial holding companies also have time before the strengthened voting requirements for CEO appointments and reappointments are applied to actual chair selections. KB Financial Group announced Lee Jaegeun as its next chair candidate in September. At an extraordinary general shareholders' meeting on November 20, it plans to put forward Lee's appointment as an inside director for a vote, after which the board will appoint the representative director and chair. If the proposal passes, Lee's term will run through November 2029. KB Financial Group is not expected to be affected by the strengthened voting requirements for CEO appointments and reappointments until 2029, when the process to select its next chair gets underway.

The terms of Ham Youngju, chair of Hana Financial Group, and Kim Kihong, chair of JB Financial Group, run through March 2028. However, both are subject to an internal age limit of 70, making another reappointment difficult. The terms of Jin Okdong, chair of Shinhan Financial Group; Lim Jongryong, chair of Woori Financial Group; and Bin Daein, chair of BNK Financial Group, all end in March 2029. Even if any of them seeks another reappointment, several years remain before then.

The financial sector says it will wait as long as possible for the proposed legal amendments. Some provisions could be revised as the legislation makes its way through the National Assembly. "The laws and regulations have not been finalized, and after reviewing the improvement plan, some aspects appear to need further refinement," a financial sector official said. "Rather than moving ahead of time, companies will begin overhauling their systems once the amendments are passed."

Meanwhile, some in the financial sector are concerned that the governance improvement plan could give outside directors excessive authority. Financial authorities say they aim to improve a closed appointment process centered on CEOs by introducing an independent director system. However, an official at a financial holding company said, "The aim itself seems positive, but it may be difficult to be certain that outside independent directors understand management issues. Someone who has worked at the company for decades and someone who has served as an outside director for a few years will have different levels of insight into and understanding of the entire company. I wonder whether outside directors will have enough background to properly vet CEO candidates."

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