KB outside directors urged to quit

FSC Vice Chairman Jeong Chan-woo

KB Financial’s board chief Lee Kyung-jae

By Chung Ah-young

Financial regulators are mounting calls for board members of KB Financial Group to step down and take responsibility for its recent internal dispute.

Financial Services Commission (FSC) Vice Chairman Jeong Chan-woo said Thursday at a seminar organized by the Korea Institute of Finance and the Korea International Economic Association that KB Financial’s board, composed of nine outside directors, are very much responsible for the latest scandal.

“After the KB scandal, distrust in financial firms’ management structure is growing. The board directors should play their roles as originally intended,” Jeong said.

“The internal dispute within management of KB Financial and KB Kookmin Bank shows how the board’s role to keep management in check can bring a significant consequence. KB Financial should secure the management structure that can be checked by the board members when management makes a wrong decision,” he said.

Former KB Financial Chairman Lim Young-rok and former KB Kookmin Bank CEO Lee Kun-ho ended up stepping down after months of disputes over a change in the bank’s computer system.

FSC Chairman Shin Je-yoon also said the KB scandal reveals the problems of its outside directors. “Reforming the board system will be core to improving the management structure,” Shin said in the recent audit at the National Assembly.

Incoming KB Financial Group Chairman Yoon Jong-kyoo said on Oct. 29 that he will launch a task force team to restructure the management under the wing of the board. Its restructuring effort will affect the FSC’s approval of KB’s takeover of LIG Insurance as its affiliate, which has been postponed because of the leadership vacuum that resulted from the internal row.

According to sources, Yoon has instructed his team to select a consulting firm to reform the management structure and launch a task force team.

However, its board members have taken a firm stance against any pressure to step down. Board chief Lee Kyung-jae firmly refused to step down.

Nine directors of KB Financial have been under criticism over failure to mediate internal conflicts among the management. The terms of six of the members will expire in March.

The system of outside directors was first introduced in Korea after the 1997-98 Asian financial crisis to keep management in check. However, outside directors are often under fire for simply serving as rubber stamps for management.