By Kim Jae-kyoung
Staff reporter
It is widely known that stock prices are the mirror of a CEO's leadership as the price reflect a company's fundamentals and directly relate to the CEO's long-term vision and strategy.
The latest movement of KB Financial Group's shares suggests that the group is reeling from the so-called CEO risk as they have continued their downward spiral since Euh Yoon-dae was nominated as chairman on June 15.
The selection was supposed to be good news for KB shares as Euh was expected to fill in the group's management vacuum since former CEO Hwang Young-key stepped down nine months ago.
However, the stock price fell sharply and the union declared its opposition to the new head because of his plan to create a mega bank by taking over Woori Financial Group. Euh, a close aide to President Lee Myung-bak and the chairman of the Presidential Council on National Branding, has said that he would consider taking over Woori.
His remarks re-ignited the heated debate over a mega bank in Korea, raising concerns that the government is trying to wield bureaucratic control over the banking industry. He later said that he would not push for an M&A in the coming year to dismiss market speculation.
However, his "careless" behavior has already disappointed shareholders and market participants, pulling down the share prices and getting the unions of both KB and Woori to join forces to oppose his mega bank plan.
Since his appointment, KB shares have been underperforming on the benchmark KOSPI, closing at 49,550 won Friday, down 3,250 won or 6.16 percent from the date of his nomination. This is in contrast to the KOSPI gaining 39.81 points, or 2.36 percent, to finish at 1,729.84 during the same period.
A series of mishaps following his nomination has put his leadership in question even before he takes the helm of the group. Euh is expected to be confirmed as KB leader at a shareholders' meeting slated for July 13. The problem is not his vision to create a mega bank but his way of communication with the market and his lack of understanding of the importance of the position.
Euh may have wanted to show his confidence that he can be a good leader for KB by unveiling his vision but it appears that he did not realize the repercussions his words would have on the financial market.
He has a proven track record of successfully heading a large organization. He showed his excellent leadership at Korea University, one of the nation's best universities, and on the Presidential Council on National Branding.
But he should realize that the chairmanship of the nation's largest financial group requires a totally different role as his or her words can have a significant impact on the financial market.
It rings particularly true, when foreign investors account for 57 percent of the group's total shares.
"I think that he was a bit careless with his comments after the nomination. Euh should realize that he is the head of the nation's largest financial group and that his actions can have a larger impact than he might think," an executive of another financial group said, asking not to be named.
"Once he takes office, he should be extra careful with his words, particularly when mentioning the group's vision and strategy, as it can affect not only the group itself but also the entire banking industry," he added.
Euh may dislike the newly-coined phrase "Euh Yoon-dae risk," but he should admit that it is created by nobody but by himself. Fortunately, the risk can easily turn into "Euh Yoon-dae premium," depending how he uses his rich experience and know-how.
If he wants to change the risk into a premium and increase share prices and the group's corporate value, he should complete two urgent tasks.
First of all, he should brush off his image as an aide to President Lee to avoid any speculation regarding bureaucratic control. To that end, he must distance himself from Cheong Wa Dae and focus on managing the group.
Secondly, he must gain market respect and confidence as the financial CEO by taking extra care in his actions and words. It is up to him how he proves himself. But he should remember that without market trust, nothing can be achieved.
"Euh's role and responsibility is significant both for the group and the local financial industry. Foreign investors are paying close attention to how KB Financial will change under the Euh's leadership. Many of them think that the future course of KB can be a litmus test for the nation's banking autonomy," the executive said.