Financial firms cry foul over chairperson term limit regulation

Rep. Park Yong-jin from the liberal ruling Democratic Party of Korea, center, poses with members of the nation's financial union in front of the National Assembly in Seoul, June 1. Yonhap

By Lee Min-hyung

Financial firms here are crying foul over what they call “excessive regulations” against their top management, after a liberal ruling party lawmaker pushed for legislative reforms introducing term limits for banking group chairpersons.

Under the planned revision to the act on financial firms' governance structures, leaders of financial holding firms here will be able to extend their terms only once, and they will only be able to stay in office for up to six years, according to lawmaker Rep. Park Yong-jin of the Democratic Party of Korea.

But officials from the nation's major financial firms argue that such a move leaves much to be desired and goes against basic market logic.

“It is unfair for legal authorities to intervene in the governance structure of financial firms, as most of them are privatized and operated by investors' capital, not with financial support from the government,” an official from the industry said.

Woori Financial Group is the only major financial firm that is not 100 percent privatized. As of Monday, the government-owned Korea Deposit Insurance Corporation (KDIC) owns a 15.25 percent stake in the company. But the government plans to sell this entire stake in Woori by the end of 2022.

Other top-tier banking groups, such as KB, Shinhan and Hana, are different. Even if the biggest shareholder for all four major groups is the National Pension Service, the pension fund's stakes in the aforementioned firms reaches only about 10 percent, so it is hard for the fund to wield much critical decision-making influence over the top management of the financial firms.

“Most existing leaders of banking groups have been able to extend their tenures largely due to their performance in helping the groups achieve earnings growth, and they are able to serve another term only after receiving approval during a shareholders' meeting,” the official said.

“If shareholders reject the idea of their term extension, it is understandable, but in this case, the unilateral decision by the politicians appears to be against the basic capitalistic logic of the market.”

The combined net profit of KB, Shinhan, Hana and Woori almost doubled during the past six years, according to data from the banking groups. In 2014, they generated 5.63 trillion won in combined net profit, but the figure jumped to 10.48 trillion won in 2020.

Nevertheless, Park and the nation's financial union did recognize the need to place an upper limit on any financial leader's term.

The arbitrary, emperor-like management of these financial groups blocks the nation's financial development and economic growth, so it is time for the political circle to put the brakes on the long-standing culture of tolerating financial leaders' term extensions, which sometimes last almost a decade, according to Park.

It remains to be seen whether the revision act will be approved by the National Assembly. But members of the financial industry here are expressing frustration over the proposal.

“Financial firms have been willing to provide financial support for the public since the outbreak of the COVID-19 pandemic in early 2020,” another source said. “This move was in line with authorities' requests, and we thought it was a step in the right direction, due to the emergency situation the economy was facing.”

The source added, “Most of the top management from the big financial groups has also remained open-minded about fulfilling their environmental, social and corporate governance (ESG) management criteria after the pandemic shock engulfed the economy. On top of that, the financial groups achieved major earnings growth, despite the virus-induced uncertainty, which helped drive up their stock prices. Against this backdrop, there are no obvious reasons for financial firms to decide to carry out any leadership reshuffle.”

The leaders of the major financial groups have been exposed to legal risks after most banks here were mired in a nationwide scandal surrounding the mis-selling of fund products last year.

“Banking groups are tightening their internal monitoring, so as to stop the recurrence of such scandals, but it is inappropriate for politicians to push for term limits of financial leaders, citing their involvement in the scandal,” the official said. “Such a political initiative will hamper management autonomy and does no good to the longer-term growth of financial players here.”