Lee Chan-jin, governor of the Financial Supervisory Service, said succession procedures for chief executives at financial holding companies' subsidiaries, including bank CEOs, fall short of standards, taking direct aim at the sector just as KB Financial Group pushed through a bold generational change in selecting its next chairman. The FSS says it did not have any particular company in mind, but critics say the authorities are once again stepping into personnel decisions ahead of a wave of year-end appointments.
"For most holding companies, the succession procedures for subsidiary CEOs drawn up by the subsidiary CEO nomination committees appear inadequate, and the role of the subsidiaries' executive nomination committees also appears limited," Lee said at an executive meeting on the 15th. "We will step up our review of whether CEO succession is being carried out according to transparent and fair standards." He stressed that transparency and fairness must be strengthened across the entire succession process, from drawing up candidate pools to vetting, evaluation and record-keeping.
Lee said a task force on improving corporate governance, which has been running since January, has discussed a range of measures to prevent CEO selection from being conducted behind closed doors based on factions or personal ties. "Please work toward operating transparent and fair management succession procedures in a way that contributes to enhancing shareholder value," he said.
He also criticized financial companies for setting out CEO qualifications only in abstract terms without establishing concrete standards. Firms manage standing candidate pools as a formality without setting minimum vetting periods at each stage of narrowing the field, and the process of shortlisting and vetting candidates is opaque, he said. According to the FSS, the eight domestic bank holding companies took an average of 45 days from the start of the succession process to the final choice of a candidate, with face-to-face assessment limited to a single interview. Global companies identify leading candidates one to two years in advance and put them through multi-rater assessments and several rounds of interviews, making the domestic process relatively weak by comparison, the regulator said.
Lee's remarks draw attention because they come at a time when a large-scale turnover of chief executives at financial affiliates is seen as possible through the end of the year, following the completion of the selection of KB Financial Group's chairman candidate on the 11th. The prevailing view in financial circles is that KB Financial's decision to put forward Lee Jae-keun, a business division head at KB Financial Group, as its next chairman candidate in the name of generational change could widen the scope of personnel changes at other financial firms. With the FSS intervening at a sensitive moment for appointments, the reading is that financial companies have little choice but to take their cue from the authorities.
The number of affiliate CEOs whose terms end at the close of this year totals 54: 10 at KB Financial Group, 12 at Shinhan Financial Group, 13 at Hana Financial Group, 12 at Woori Financial Group and seven at NH NongHyup Financial Group. The terms of major bank chiefs all expire, including Lee Hwan-joo of KB Kookmin Bank, Jung Sang-hyuk of Shinhan Bank, Lee Ho-seong of Hana Bank, Jung Jin-wan of Woori Bank and Kang Tae-young of NH NongHyup Bank. Citibank Korea and Suhyup Bank are also in the process of selecting their next chief executives. A senior financial industry official said the message "could be read as pressure to carry out a sweeping shake-up at major affiliates, including the banks."
The FSS has faced criticism that it has intervened in personnel decisions at financial firms under the banner of improving governance. It stirred controversy over such intervention by sending direct and indirect messages during the processes of choosing successors to Hana Financial Group Chairman Kim Jung-tai in 2018, Shinhan Financial Group Chairman Cho Yong-byoung in 2019 and Woori Financial Group Chairman Sohn Tae-seung in 2022, as each completed their term.
Under the governance best practices the FSS drew up in 2023, financial holding companies and banks must begin their management succession process at least three months before a CEO's term expires. In practice, that means succession work must start this month. The financial authorities are also preparing to announce measures to improve governance at financial companies. Various options have been floated, including tightening the voting requirements for approving the appointment of a financial holding company chairman at shareholder meetings, but the details and timing of the announcement have not been finalized. An FSS official said the request was for firms to comply with fair and transparent procedures, given the large number of CEOs whose terms end this year.
