Gov't to curb incumbents' influence over CEO selection process in sweeping corporate governance overhaul
Financial Services Commission Chairman Lee Eog-weon, center, speaks at a meeting between government and ruling Democratic Party of Korea (DPK) officials on proposed reforms to financial corporate governance at the National Assembly in Seoul, Thursday. Yonhap
The government is set to prevent incumbent CEOs at financial companies from having an undue influence on appointing their successors, while imposing tougher voting requirements for bank holding company chiefs who seek to extend their tenure, according to financial authorities, Thursday.
The measures are part of a long-delayed corporate governance reform package unveiled by the Lee Jae Myung administration and the ruling Democratic Party of Korea (DPK), aimed at making leadership succession more transparent and strengthening board independence across the financial sector.
The Financial Services Commission (FSC) plans to draw up amendments to the Act on Corporate Governance of Financial Companies within the year. The changes are expected to take effect six months after the legislation is passed.
A central focus is to give independent directors greater control over leadership succession and strengthen their ability to hold management accountable.
Under the proposed changes, committees responsible for nominating CEO candidates would consist entirely of independent directors. Sitting CEOs would also be barred from attending committees that nominate these independent directors, thus closing off a potential channel through which incumbent chiefs could exert influence over their own succession.
“We have seen the problems that arise when CEOs consolidate their grip on power. The idea is to apply particularly strict standards to their appointments,” Jun Yo-seop, director general of the FSC’s financial policy bureau, said at a briefing Wednesday.
The package also seeks to curb the long-held practice at bank holding companies that repeatedly extend terms of incumbent charimen and CEOs.
Major financial groups, such as KB, Shinhan and Hana, have widely dispersed ownership, with no controlling shareholder able to exercise direct oversight over management. This can leave individual shareholders with limited influence over executive appointments.
To address this, the authorities plan to raise the approval thresholds for both their nomination and reappointment.
Under current rules, a CEO candidate can be recommended with the support of a simple majority of nomination committee members present at the meeting. The proposed changes would require at least two-thirds of the committee’s full membership to approve the nomination. For an incumbent seeking another term, the threshold would rise to three-quarters.
Shareholder approval would also become more demanding the longer a CEO remains in office. Currently, appointments and reappointments require support from a majority of voting rights represented at a shareholders’ meeting. Under the proposed rules, a CEO’s first reappointment would require support from at least two-thirds of votes represented at the meeting. For a second or subsequent reappointment, the threshold would rise to three-quarters.
Jun said that, in a review of around 15 cases involving major financial holding companies since 2020, three CEO candidates received less than 75 percent support at shareholders’ meetings but were still approved under the existing rules.
“It's not unheard of for a candidate to fall short of the 75 percent mark and still get appointed,” he said, adding that candidates with strong track records and the backing of shareholders would generally have little difficulty exceeding the threshold.
The director general stressed that the tougher voting requirements should be viewed as part of a broader effort to strengthen board independence, rather than as a standalone safeguard.
“We’re working to ensure that independent directors are genuinely independent from the outset. We’re also tightening the rules governing nomination committees. With those safeguards in place, raising the approval thresholds at both the committee and shareholder levels should subject CEO candidates to much closer scrutiny,” he said.
The third pillar of the package concerns executive compensation, with the authorities seeking to give shareholders a clearer picture of individual executives’ pay and how closely it is tied to their performance and responsibilities.
Previously, shareholders have approved only the overall compensation limit for directors, with individual pay packages determined by the board. The revision requires listed financial companies with assets of at least 2 trillion won ($1.5 billion) to present individual executive compensation plans at annual shareholders’ meetings under a so-called “say-on-pay” system.
The government also plans to introduce clawback provisions requiring executives to return performance-based compensation if they cause losses to their companies through gross negligence or if financial statements used to calculate their bonuses are subsequently restated.