Financial authorities are pursuing measures to limit the terms of financial holding company chairs to prevent them from establishing long-term power bases by forming boards of directors that favor their interests. Plans are also being considered to strengthen the reappointment process and enhance the independence of outside directors. While it is appropriate to check the excessive concentration of power in the hands of the chair, creating a governance structure that allows for proper selection and oversight of the chair is more important than simply cutting the term to a few years.
In South Korea, the chair of a financial holding company effectively controls personnel decisions, budgets, and business strategies of its subsidiaries. They wield significant influence over the appointments of bank, credit card, insurance, and securities company leaders. Despite being at the helm of financial groups managing assets worth tens to hundreds of trillions of won, there are no substantial shareholders to effectively oversee them. When the board of directors is dominated by the chair in a structure with dispersed ownership, it can easily lead to unchecked power.
Critics have long pointed out that in some financial holding companies, the chair's nomination committee operates more like a body that endorses the current chair's reappointment. The chair influences the selection of outside directors who are close to them, and this board then decides on the chair's reappointment. Potential competitors are often sidelined or excluded from the candidate pool. As the chair's term comes to an end, there have been claims that they focus more on managing outside directors and securing reappointment than on management innovation.
In such a structure, management practices that inflate short-term performance are inevitable, prioritizing profits from household loans and real estate finance, which are then used to justify large bonuses. When financial accidents or failures in internal controls occur, the blame often falls on subsidiary representatives or staff. If profits are attributed to the chair while accidents are blamed on employees, it cannot be considered responsible management. The discussion around limiting the long-term reappointment of financial holding chairs is a consequence of the industry's own making.
However, simply preventing three consecutive terms will not resolve the issues. Even with term limits, if a chair pre-selects a successor to maintain influence or rotates positions among close associates, little will change. Reducing a nine-year term to six years does not guarantee an independent board. There is also a risk that government or financial authorities may exert more influence each time a chair changes. If the government effectively appoints the CEO of a private financial company, it would signify a regression to 'state-controlled finance,' which would be a significant setback for reform.
The key lies in the transparency of the selection process. Criteria for forming the chair candidate pool, evaluation metrics, and verification procedures should be disclosed to shareholders. The independence of the nomination committee must be ensured to prevent the current chair from interfering in succession planning. Outside directors should be selected based on their expertise in finance and risk management, rather than personal connections with the chair. Mechanisms must also be established to ensure that the opinions of institutional investors and minority shareholders are genuinely reflected.
Reappointment evaluations should be stricter than those for new appointments. They should not only consider net profit and stock prices but also assess financial accidents, consumer protection, internal controls, soundness management, and long-term corporate value. In the event of a major incident, previously awarded bonuses should be reclaimed, and outside directors should be held accountable if the board fails to fulfill its supervisory responsibilities. Simply limiting terms while maintaining a structure where power is concentrated without accountability will only create another form of chair power.
Financial holding companies operate based on the public's deposits and are protected by public safety nets in times of crisis. This necessitates a high level of public accountability and responsibility. Financial authorities must not stop at the noticeable regulation of prohibiting three consecutive terms. Regardless of who becomes the chair, there must be a structure in place that prevents unilateral power, allows for oversight by the board and shareholders, and ensures accountability in the event of incidents. The success of financial holding reform hinges not on how many terms a chair serves but on how transparently chair power is controlled.
In South Korea, the chair of a financial holding company effectively controls personnel decisions, budgets, and business strategies of its subsidiaries. They wield significant influence over the appointments of bank, credit card, insurance, and securities company leaders. Despite being at the helm of financial groups managing assets worth tens to hundreds of trillions of won, there are no substantial shareholders to effectively oversee them. When the board of directors is dominated by the chair in a structure with dispersed ownership, it can easily lead to unchecked power.
Critics have long pointed out that in some financial holding companies, the chair's nomination committee operates more like a body that endorses the current chair's reappointment. The chair influences the selection of outside directors who are close to them, and this board then decides on the chair's reappointment. Potential competitors are often sidelined or excluded from the candidate pool. As the chair's term comes to an end, there have been claims that they focus more on managing outside directors and securing reappointment than on management innovation.
In such a structure, management practices that inflate short-term performance are inevitable, prioritizing profits from household loans and real estate finance, which are then used to justify large bonuses. When financial accidents or failures in internal controls occur, the blame often falls on subsidiary representatives or staff. If profits are attributed to the chair while accidents are blamed on employees, it cannot be considered responsible management. The discussion around limiting the long-term reappointment of financial holding chairs is a consequence of the industry's own making.
However, simply preventing three consecutive terms will not resolve the issues. Even with term limits, if a chair pre-selects a successor to maintain influence or rotates positions among close associates, little will change. Reducing a nine-year term to six years does not guarantee an independent board. There is also a risk that government or financial authorities may exert more influence each time a chair changes. If the government effectively appoints the CEO of a private financial company, it would signify a regression to 'state-controlled finance,' which would be a significant setback for reform.
The key lies in the transparency of the selection process. Criteria for forming the chair candidate pool, evaluation metrics, and verification procedures should be disclosed to shareholders. The independence of the nomination committee must be ensured to prevent the current chair from interfering in succession planning. Outside directors should be selected based on their expertise in finance and risk management, rather than personal connections with the chair. Mechanisms must also be established to ensure that the opinions of institutional investors and minority shareholders are genuinely reflected.
Reappointment evaluations should be stricter than those for new appointments. They should not only consider net profit and stock prices but also assess financial accidents, consumer protection, internal controls, soundness management, and long-term corporate value. In the event of a major incident, previously awarded bonuses should be reclaimed, and outside directors should be held accountable if the board fails to fulfill its supervisory responsibilities. Simply limiting terms while maintaining a structure where power is concentrated without accountability will only create another form of chair power.
Financial holding companies operate based on the public's deposits and are protected by public safety nets in times of crisis. This necessitates a high level of public accountability and responsibility. Financial authorities must not stop at the noticeable regulation of prohibiting three consecutive terms. Regardless of who becomes the chair, there must be a structure in place that prevents unilateral power, allows for oversight by the board and shareholders, and ensures accountability in the event of incidents. The success of financial holding reform hinges not on how many terms a chair serves but on how transparently chair power is controlled.
* This article has been translated by AI.
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