Will KT, POSCO replace CEOs as Shinhan, Woori did?

Privatized companies on alert over Yoon's request to revamp governances

By Park Jae-hyuk

The Yoon Suk Yeol administration has indicated its intention to meddle in the governance of former public enterprises that have long since been privatized ― two decades ago ― as the government forced financial holding companies recently to replace their chairmen.

Concerns are therefore growing over the possibility of nepotism spreading to both KT and POSCO Holdings, based on who ends up replacing their chief executives.

On Jan. 30, Yoon said that "stewardship" is needed at companies with a multiple ownership structure that were privatized after being operated in the past as state-run enterprises. In the capital market, stewardship refers to the interference of institutional investors in the management of companies they invest in.

"If banks and companies with totally dispersed ownership have transparent governance structures and their managers do business under such structures, those companies and our society will be able to achieve harmony in terms of costs and profits," the president said after listening to the Financial Services Commission's plans for this year.

Although he did not name the companies directly, his remarks were considered controversial enough to unnerve KT and POSCO Holdings, given that Shinhan, Woori and NongHyup financial groups have already decided to replace their chairmen.

Shinhan Financial Group Chairman Cho Yong-byoung offered to resign last December, handing over his post to former Shinhan Bank CEO Jin Ok-dong. Woori Financial Group Chairman Son Tae-seung also decided not to serve another term last month, after facing pressure from the financial authorities to step down.

NongHyup Financial Group gave the seat of its chairman last December to former Minister of the Office for Government Policy Coordination Lee Suk-joon, who had chaired Yoon's presidential campaign early last year.

Amid the growing influence of the government over banking groups, the National Pension Service (NPS) criticized KT and POSCO Holdings for allowing their incumbent chief executives to maintain their positions through unfair reappointment procedures.

The state-run pension fund, which is the largest shareholder of both companies, has especially opposed the KT board's plan to reappoint CEO Ku Hyeon-mo, claiming that its recommendation procedure was unfair and not transparent.

"KT's recommendation of the incumbent CEO as the sole candidate does not accord with the basic principle of election," NPS Chief Investment Officer Seo Won-joo said in a press release last month.

It was unusual for the pension fund to release a statement to level criticism at a privately owned company's decision, but its stance has gained support from the ruling People Power Party, as well as progressive civic groups.

"In addition to the NPS, civic groups including the People's Solidarity for Participatory Democracy questioned the reappointment of Ku," Rep. Kim Yeung-shik of the ruling People Power Party said on Jan. 30. "Even if its interference is branded as government control over private enterprises, the NPS needs to follow the stewardship code."

Against this backdrop, the CEOs of KT and POSCO Holding did not attend Yoon's meeting with business leaders earlier this year, creating speculation that they are facing pressure to step down. The Korea Chamber of Commerce and Industry, which organized the event, said at that time that invitations had been sent to both KT and POSCO Holdings, but their CEOs were absent from the event.

Both KT and POSCO Holdings have maintained a cautious stance on the recent situation.

Their respective CEOs took office under the previous Moon Jae-in administration.

While the KT CEO hopes to serve another term, POSCO Holdings Chairman Choi Jeong-woo is supposed to finish his term in March next year.

However, it is unclear whether Choi will be able to complete his term, considering the fact that his predecessors stepped down in the aftermath of the transfer of political power.

POSCO founder Park Tae-joon resigned after a political dispute with former President Kim Young-sam. His successors also failed to serve out their terms.

Former Chairman Chung Joon-yang, who was appointed under the Lee Myung-bak administration, offered to resign after former President Park Geun-hye took office. His successor, former Chairman Kwon Oh-joon, was reappointed in March 2017, but he stepped down under the Moon administration.

At KT, former CEO Nam Joong-soo resigned after the launch of the Lee administration, while former Chairman Lee Suk-chae stepped down after being investigated by prosecutors under the Park administration.

Industry officials raised concerns over the repeated replacement of the CEOs of both companies, pointing out the possible inefficiency in their management.

"It may cause a problem, if the NPS meddles excessively with management of private enterprises," said Yoo Hwan-ik, head of the Federation of Korean Industries (FKI) corporate policy division. "The NPS should be more cautious about its interference in management, although it should request transparent governance structures."

POSCO and KT were privatized in 2000 and 2002, respectively.

There remains a possibility that their foreign shareholders refuse to follow the government's attempt to replace their CEOs. In 2018, the Moon administration tried to replace KT&G CEO Baek Bok-in by utilizing shares owned by the state-run Industrial Bank of Korea, but it ended in failure as the tobacco maker's foreign shareholders voted for Baek's reappointment.