FSS urges bank boards to ensure transparency in CEO appointments

Financial Supervisory Service Governor Lee Bok-hyun, center, enters the Korea Federation of Banks in central Seoul, Tuesday. Newsis

Financial Supervisory Service (FSS) Governor Lee Bok-hyun called on the boards of directors of financial holdings companies, Tuesday, to enhance fairness and transparency in the appointment process of CEOs and outside directors to improve corporate governance.

He also urged the boards to strengthen monitoring and supervision of management at the financial groups and to improve their corporate culture that focuses on short-term performance.

The comments were made during Lee's meeting with the board chairpersons of eight financial groups — KB, Shinhan, Hana, Woori, NH NongHyup, BNK, DGB and JB — at the Korea Federation of Banks (KFB) in central Seoul, Tuesday.

“The board of directors should always bear the ultimate responsibility of bringing about the improvement of corporate governance," the FSS governor said.

He also pointed to the so-called "entrenchment effect," which refers to CEOs or key management officials of companies using their position to pursue goals that only benefit themselves and not the shareholders.

"We particularly urge the boards of directors of financial groups to make special efforts to strengthen procedural legitimacy and fairness to prevent 'entrenchment effects' by management as well as to preclude the emergence of a closed corporate culture," Lee stressed.

He added that a board of directors should focus on risk management policies by strengthening their supervisory function over management to ensure that an excessive concentration of a CEO's authority does not lead to a failure to adhere to compliance measures.

Financial Supervisory Service Governor Lee Bok-hyun passes by reporters at the Korea Federation of Banks building in central Seoul, Tuesday. Newsis

Highlighting that risk management and internal controls are essential for financial institutions to achieve sustainable growth, the FSS chief called on domestic financial companies to comply with a set of "best practices for the governance structure of financial holdings companies and banks" announced earlier in the day.

"The FSS strongly urges the board of directors to actively come up with specific improvement roadmaps for each principle included in the best practices announced today," Lee said during the meeting.

The state-run watchdog agency and the banking sector formed a task force five months ago to draw up the best practices for corporate governance at banks.

The list of the best practices presents 30 core principles to achieve a desirable governance structure, such as improving the appointment of the CEO and the management succession processes, ensuring the collective coherence and independence of the board of directors, and strengthening the evaluation system for outside directors.