By Kang Seung-woo
Shinhan Financial Group has accomplished marvelous growth in the space of 30 years. Indisputably, the engine that has driven its steep upward climb is the ingenuity and can-do spirit shared by its leaders and employees, taking pride in being independent of state control.
Now, Shihan’s proud history of independence is in danger of being swept away due to an internal power struggle that has forced its Chairman Ra Eung-chan to step down, while his long-time comrades in arms ― Shinhan Financial CEO Shin Sang-hoon and Shinhan Bank CEO Lee Baek-soon ― are under investigation alongside him.
Financial regulators may feel tempted to bring in who they can for the new Shinhan leadership but, if that is the case, it would serve as a poison pill suppressing the Korean banking industry, already under the government’s thumb or foreign-owned.
So, partly out of concern and partly out of anticipation, who will succeed Shinhan’s old guard is being wildly speculated about ― government-influenced appointees, or next-generation Shinhan executives.
At Shinhan, a special committee was set up to name a new boss by March 2011, following Chairman Ra’s stepping down.
Currently, there are several candidates being floated around. They include Ryu Shi-yul, acting chairman; Kim Pyung-joo, a professor emeritus at Sogang University; and Lee Chul-hwi, former chairman of the Korea Asset Management Corp. (KAMCO).
The committee consists of nine directors excluding the top three executives of Shinhan Finance.
While Ra is plagued by a breach of the Real-Name Financial Transaction Law, Shin and Lee are also involved in legal troubles.
The committee will run the group until March, when a general meeting of shareholders is to be held.
There are growing concerns, however, that if the committee is not fully independent of state influence, it will make it subject to calls by the regulators one way or another.
This is especially so because the top three executives’ resignation can present a convincing argument that the government should control the country’s most profitable banking group.
Market watchers say that if Shinhan has a state-appointed leader, its bottom line will be affected, with its competitiveness compromised.
“The government’s meddling in a privately-owned company can trigger ineffectiveness. For example, loans can be extended for a political purpose, which can lead to insolvency,” a finance expert said on condition of anonymity.
“Although there are some problems hurting Shinhan’s corporate governance, it is awkward for the government to get involved,” he said. “Rather than strengthening its control over a financial holding company, the government had better employ outside directors who have greater expertise in solving problems.”
A total of 130 gathered in Osaka, Japan on Oct. 14 reached an agreement to select new management from inside the group.
Even though Shinhan is trying to openly choose its new chairman, there is still a chance for those who have government ties to get the job as was the case with other financial holding companies.
There were controversies over the management selection at KB Financial Group in June, while the government still holds 57 percent stake in Woori Financial Group. The privatization of Woori has just got under way after 10 years of state control.
Meanwhile, there are some from inside Shinhan being touted as Ra’s replacement. They include Lee Hyu-won, CEO of Shinhan Investment Corp.; Lee Jae-woo, CEO of Shinhan Card; Lee In-ho, the group’s former CEO; and Hong Sung-kyun, a former CEO of Shinhan Card.