Drama intensifies over KB chairmanship

Selection may serve as touchstone for level of freedom in banking industry

By Yoon Ja-young

Staff reporter

The financial market is full of speculation over who will be selected to lead KB Financial Group, where the post of chairman has been vacant for months.

While the process has been drawn out and criticism is strong that the government is trying to exert influence on who will become chairman, some analysts are saying that it may be better for KB to have a chairman with strong connections with the government to push ahead with a merger and acquisition effort. But others say that reason alone doesn't justify the need for a government-connected chairman.

"It would be better for the financial group to have a head who is on the same wavelength with the government when considering M&A deals," said Shim Kyu-seon, an analyst at Hi Investment & Securities.

Shim pointed out that M&A are crucial for KB which is less competitive in non-banking businesses. Shinhan Financial Group, which has a good business portfolio, has bested KB in terms of market cap while KB is suffering a leadership vacuum.

"To turn its game around, KB needs charismatic chairman who can exert influence. It would be difficult to rule out those with connections to the government," he said.

Another analyst concurred. "The candidate who can cooperate with the government and its roadmap to redesign the banking industry will be selected. The M&A deal with the Korea Exchange Bank for example won't work according to economic principles only. The candidate who follows the government's political intentions will be selected," an analyst said, asking to remain anonymous.

He said that raising return on earnings or paying bigger dividends isn't all there is to bank management. "For top financial groups like KB, someone who deals smoothly with political pressure will be better," he said.

According to industry sources, a committee has been set up in KB comprising of nine outside directors to recommend a final candidates for the chairmanship from 33 selections made by a head hunting firm.

The committee will determine a short list of around 3 or 4 by June 4, and make their recommendation to the board in mid-June. The person chosen will lead the group for the next three years after getting approval at a shareholders' meeting.

The post of leading the country's top financial group appears very attractive and even honorable, but it has proved a double edged sword. Former KB Chairman Hwang Young-key had to resign after receiving a suspension of duty penalty from the Financial Supervisory Service. Kang Chung-won, CEO of Kookmin Bank, the flagship of KB Financial, was nominated to succeed Hwang, but he had to withdraw after tough audits by the financial regulator.

Following the unusually tough audits, there was criticism that the government was trying to meddle in the chairman selection of a private business. Despite this, the candidate recommendation committee told The Korea Times that past careers would be no hurdle for being awarded the chairmanship.

The committee will make its decision based upon the criteria of leadership, a global mindset, extensive experience, financial expertise, decision-making ability, efficient communication and personality

Though some analysts say that KB may do better under a chairman who has a strong connection with the government, Kim Sang-jo, a Hansung University professor, said that this is groundless, as is the need for more M&As. "I am pessimistic about the mega bank theory," he said. "KB is big enough, not only in Korea, but in Northeast Asia. Increasing bulk doesn't mean it will be more competitive in the global arena," he said.

The strongest candidate for the chairmanship is Presidential National Branding Committee chief Euh Yoon-dae. The former president of Korea University, from where President Lee Myung-bak graduated is known to be close to the President. On top of this connection he has a good global mind and strong determination.

KAMCO CEO Lee Chul-hwi, a former finance ministry official, and former Daegu Bank CEO Lee Hwa-won, also known to be close to President Lee, are other possibilities.

Former finance minister Kang Man-soo, chairman of the Presidential Committee on National Competitiveness who attends the Somang Presbyterian Church in southern Seoul with President Lee is also in contention for the post.

Professor Kim, however, said the management of KB should focus on improving its competitiveness amid uncertainties in the market instead of focusing on M&A efforts.

"I am not saying that KB's outside directors were right when they selected Kookmin Bank CEO Kang as chairman. The process itself, however, was legitimate, and it is doubtful whether the candidates are more talented than Kang. Nullifying the board's decision through the regulator's tough audit shows why Korea's financial industry is lagging behind the rest of the world," he said.