'Financial firm's governing structure lacks procedural legitimacy'

Financial Supervisory Service (FSS) Governor Choe Heung-sik speaks during a luncheon to mark his 100th day as the watchdog's chief at its office in Yeouido, Seoul, Tuesday. / Courtesy of FSS

By Nam Hyun-woo

Financial Supervisory Service (FSS) Governor Choe Heung-sik said Tuesday that the watchdog will launch a monitoring campaign on major financial firms in Korea to check the transparency and fairness in their governing structure and CEO succession.

“Early next year, the FSS will monitor financial firms’ transparency and diversity in their CEO nomination and guide them to come up with more objective and detailed processes in narrowing the candidate pool,” Choe told reporters during a luncheon to mark his 100th day in office.

“Recently, there have been controversies over a number of financial firms’ CEO succession processes,” he said. “Though it is a matter of their own discretion, each firm’s CEO recommendation committee and nominating process are designed to be under the influence of the incumbent CEO, which lacks legitimacy.” To appoint a CEO, financial holding companies usually set up a recommendation committee which recommends the best candidate. When a sole candidate is named, they usually get approval at a shareholders’ meeting. However, in several cases, CEOs join the recommendation committee, leading to criticism that “they elect themselves for a second or third term.”

Choe’s remarks were in line with Financial Services Commission (FSC) Chairman Choi Jong-ku’s comments that “financial firms should be led by those who have capability to lead and their governing structure should be improved.” The two top regulators’ remarks came after controversies were stirred at KB Financial Group and Hana Financial Group over the reappointment of their CEOs

KB Financial Group Chairman Yoon Jong-kyoo was recently reappointed for a second term despite a conflict with the firm’s union, and Hana Financial Group Chairman Kim Jung-tae also has his eyes on a third term.

However, Choe said his remarks were not aimed at specific companies.

“It is a mandated duty of a watchdog,” Choe said. “It is a rule, so why should the watchdog overlook risk management?”

In August last year, the Act on Corporate Governance of Financial Companies went into effect. Financial firms said they have been in compliance with the act and argued that the authority’s comments on their governing structure were excessive. Choe said the FSS had been examining their governing structure even before the act came into force. The reason he continues to mention it is because firms have not improved their practices, he said.

Specifically, the FSS said it will make firms heed the recommendations from shareholders, outside consultation and other more independent institutions. Also, it will push financial firms to cut off shortlisted candidates who do not meet certain criteria — such as experience in at least two different firms in the group — and come up with more objective means of measuring a candidate’s potential.

Regarding Korea’s explosive activities in the virtual currency trading scene, Choe said the FSS cannot intervene in trading because it does not see the tokens as legal tender, but stressed that it will advise investors to be more cautious.

“We don’t acknowledge the gambling scene,” Choe said. “If the FSS comes up with measure, it will be interpreted as the authority’s acceptance of virtual currencies, which will lead the current boom to become more explosive.”