KB Financial to reduce power of outside directors

By Chung Ah-young

KB Financial Group will reduce the number of outside directors and their authority as part of the efforts to reform its governance structure, sources said Sunday.

The group has submitted a governance reform plan to the financial regulator in an apparent move to win approval to acquire LIG Insurance.

Industry sources said that KB Financial will drastically cut the authority of its outside directors who have been under fire for mishandling an internal dispute. Former KB Financial Chairman Lim Young-rok and former KB Kookmin Bank CEO Lee Kun-ho stepped down after the months-long dispute over changing the bank’s computer system.

The Financial Services Commission (FSC) has indicated that outside directors are responsible for the recent feud and that their resignation is one of the key conditions for its approval of KB’s takeover of LIG.

The group has entrusted the reform plan to an outside consulting firm and its board members discussed it on Dec. 12.

The reform plan will be a decisive factor in the financial regulator deciding whether it will approve the takeover of the insurer as an affiliate at a regulator’s meeting Dec. 24.

Last week, seven outside directors announced they will quit at a shareholders meeting in March next year in response to the regulator’s mounting pressure. Previously, board chairman Lee Kyung-jae resigned from his chairmanship and the board last month.

Under the reform plan, KB Financial will curtail the number of outside directors both in the holding company and the banking unit and diversify their board members from various sectors. Six out of nine directors of the group were former professors. In the latest scandal, nine outside directors in KB Financial and six in KB Kookmin Bank failed to mediate the internal rife between the top managers.

Instead, it will increase the number of standing directors. Currently, KB Financial Chairman and Kookmin Bank CEO Yoon Jong-kyoo are the only standing directors.

Also, the group will select outside directors in a more transparent way. The outside director selection procedure was considered an unfair practice because the group’s chairman and four outside directors were in charge. Under the reform plan, experts and customers’ representatives along with KB executives will participate in the appointment process.

Outside directors will have limited power in the management decision-making process.

Instead the group will give more authority to a management committee consisting of executives of the holding company when it decides major issues.

It will also launch a CEO succession program in which the group’s next chairman should be selected before the sitting chairman’s tenure is completed.