[Steel Rice Bowl Outside Director]② Was It an Opportunity to Build a Trench of 'Sharing Weal and Woe' with the CEO?

Long-serving Outside Director and Long-serving CEO with 'Similar Terms'
Reappointment Again and Again Despite Various Financial Scandals

The relationship between outside directors and chief executive officers (CEOs) of financial companies so far can be summarized as 'sharing weal and woe (同苦同樂).' Despite frequent financial accidents, CEOs maintained close relationships with outside directors, attempting not only reappointments but even third and fourth terms. Outside directors also matched this with 'long-term tenure.' This has led to criticism that the outside directors acted more as a 'trench' for long-term reappointments rather than checking the CEO's unilateral decisions.

According to the financial sector on the 6th, the procedures for appointing outside directors at each financial holding company and bank are largely similar. After selecting a first pool of candidates (long list) through a search firm or shareholder recommendation process, an internal and external evaluation and reputation check are conducted to form a narrowed candidate pool (short list).

The Outside Director and Audit Committee Candidate Recommendation Committee (Nomination Committee), composed entirely of outside directors, frequently revises and supplements this to maintain the candidate pool. Based on this, the Nomination Committee obtains the candidate's consent and recommends the final candidate, who is then appointed as an outside director through the board of directors and shareholders' meeting.

Sharing Weal and Woe with the CEO

The outside directors who took office through this process repeatedly shared weal and woe with the CEOs. Looking at the 'longest-serving' outside directors by financial holding company, most of their tenures overlap significantly with the current CEOs. For example, Heo Yoon, an outside director at Hana Financial Group, served as an outside director at Hana Bank for three years from 2015 to 2018 and has been an outside director at Hana Financial Group for five years since 2018. This period is similar to the tenure of former Hana Financial Group Chairman Kim Jung-tae (2012?2022).

In the case of Woori Financial Group, outside directors Noh Sung-tae and Park Sang-yong have served as outside directors for six years since the end of 2016, including the period before the holding company system transition when it was Woori Bank. This period mostly coincides with Chairman Sohn's tenure as bank president and chairman (2017?2023). The two directors recently expressed their intention to resign following Chairman Sohn Tae-seung's retirement.

At Shinhan Financial Group, long-serving directors Park An-soon and outside director Sung Jae-ho (professor at Sungkyunkwan University) have tenures that largely overlap with Chairman Cho Yong-byeong (2017?2023). Director Park was appointed in 2017 and has been reappointed four times consecutively, while Director Sung served at Shinhan Card (2015?2019) and Shinhan Financial Group (2019?present). Director Sung was also recommended as an outside director for the holding company at the shareholders' meeting held this month.

'Reappointment OK' Despite Various Financial Accidents

However, questions arise as to whether these long-serving outside directors effectively played a role in checking the CEO and management. During their shared tenure, various financial scandals occurred, including suspicions of hiring irregularities at commercial banks (2015?2017), the Lime Asset Management fund redemption suspension incident (2019), massive losses from overseas interest rate-linked derivative-linked funds (DLF) (2019), the Optimus scandal (2020), and the Discovery Asset Management fund redemption suspension incident (2020). Despite these, CEOs attempted third and fourth reappointments, with some succeeding.

Some in the financial sector suggest that outside directors and CEOs may have established a kind of symbiotic relationship. A former senior official in the financial sector pointed out, "Although there is a Nomination Committee in the system, in practice, the CEO's influence is inevitably significant. Moreover, the personal networks built over many years of sharing weal and woe between CEOs and outside directors, or among outside directors themselves, inevitably act as an unignorable trench."

Kim Woo-jin, senior research fellow at the Korea Institute of Finance, stated in a discussion titled 'Governance Issues and Improvement Measures of Domestic Bank Holding Companies' that financial holding companies should manage candidate pools regularly as a way to legitimize the CEO succession process.

He emphasized, "Compared to the current long list method, it is necessary to select a short list of about three candidates and maintain regular contact and gather opinions to continuously verify the candidates' abilities and qualifications." He added, "To secure the independence of outside directors, it is also necessary to consider mandating the regular holding of 'closed-door meetings' where opinions can be freely exchanged without management present."