The proposal to limit the chairperson of financial holding companies to two terms may be excluded from the final plan for improving governance structures. Initially, financial authorities considered a stringent measure that would restrict the chair's reappointment to just one term. However, concerns were raised within the ruling party that legally limiting the tenure of CEOs at private financial firms could be seen as excessive management intervention.
According to sources in the financial and political sectors, the Financial Services Commission plans to announce its governance improvement measures after the Democratic Party's national convention concludes on the 17th. It is reported that the ban on the chair's third term, which was initially a key component of the proposal, is likely to be omitted.
The Financial Services Commission believes it is necessary to limit the number of terms for the chair to prevent the establishment of a long-term power base, often referred to as 'trench building,' centered around outside directors who are favorable to the current chair.
However, within the ruling party, there are concerns that uniformly restricting the tenure of CEOs at private financial firms could be perceived as excessive management intervention. The high foreign ownership rates in major domestic financial holding companies also contribute to the reluctance to legislate CEO term limits, as there are few precedents for such measures internationally.
Additionally, the Financial Services Commission has considered measures to enhance board independence by limiting the terms of outside directors to three years or adopting a 2+1 year system. However, this proposal is also likely to be excluded from the final plan. The decision reflects a belief that strengthening the independence and accountability of the board during the chair selection process would be more effective than merely imposing term limits.
The announcement of the governance improvement plan has already been postponed several times. The Financial Services Commission initially intended to unveil the proposal in March but abruptly canceled the announcement on the scheduled day. Subsequently, the head of the Financial Supervisory Service, Lee Chan-jin, stated that the announcement would occur before KB Financial Group finalized its shortlist of chair candidates on July 3, but this also did not materialize. The announcement, which was scheduled for the end of last month, was also temporarily canceled.
As the negotiations between the government and the ruling party drag on, there are concerns in the financial sector that key elements of the governance reform may be significantly weakened. While financial authorities have sought to address issues of long-term chairmanship and board independence, the exclusion of the proposed term limits and the shortening of outside director terms could diminish the effectiveness of the reforms.
Currently, KB Financial Group has the nearest expiration of terms among major financial holding companies. Chairman Yang Jong-hee's term ends in November. However, since he is currently serving his first term, he would not be subject to any newly introduced term limits.
Professor Kim Dae-jong of Sejong University's Business Administration Department stated, “It is important to be cautious about uniformly prohibiting reappointments for CEOs of private financial companies, as this could undermine sound governance. Creating a transparent and independent evaluation system is a way to secure both the competitiveness of the financial industry and management stability.”
* This article has been translated by AI.
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