[Steel Rice Bowl Outside Director] ① '9 Years Reappointed' Emerges... 40% Long-Term Reappointment in 5 Major Financial Institutions

Decision on Appointment of Outside Directors at Major Financial Firms in March General Meeting
Financial Authorities "Issue of Long-Term Board Tenure"

Shinhan and Hana Have Outside Directors Serving Ninth Consecutive Year This Year

The biggest focus in the shareholder meetings of the five major financial holding companies scheduled for the end of this month is the appointment of outside directors. President Yoon Suk-yeol emphasized the need for "transparent governance in companies without clear ownership" (January 30, Financial Services Commission briefing), and Lee Bok-hyun, Governor of the Financial Supervisory Service, pointed out that "the problem lies in outside directors remaining on the board for extended periods due to personal relationships with management" (February 6, FSS briefing). [Related Article] 'Iron Rice Bowl Outside Directors'

The Financial Supervisory Service announced it will conduct inspections to strengthen board oversight and plans to hold annual meetings with boards. The Financial Services Commission is also launching a 'Task Force (TF) for Internal Control and Governance System Improvement.' Despite these consecutive warnings from authorities, there is a temperature gap with the industry. Even after the shareholder meetings conclude at the end of this month, 'iron rice bowl outside directors' are expected to remain noticeable in major financial firms.

While the World Changes... Outside Directors Serving for 9 Years

On the 7th, Asia Economy analyzed the terms of outside directors at the five major financial holding companies and the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup). Among a total of 64 outside directors (excluding 3 who serve concurrently at Woori Holdings and Woori Bank), 26 (40%) have served long terms of 4 years or more (3 or more consecutive terms), including at holding company affiliates. The longest-serving individuals are Director Seong Jae-ho (4 years at Shinhan Card, 4 years at Shinhan Holdings) and Director Heo Yoon (3 years at Hana Bank, 5 years at Hana Holdings), each recording an '8-year term.' Director Heo is a professor at Sogang University Graduate School of International Studies, and Director Seong is a professor at Sungkyunkwan University Law School.

Both are set to enter their '9th year' of term after this month's shareholder meetings. Each company decided to extend their terms by one year, reaching the maximum term stipulated by law.

According to the Financial Companies Governance Act, anyone who has served as an outside director for more than 6 years at one company, or whose combined service at that company and its affiliates exceeds 9 years, is not eligible for selection as an outside director. In other words, the maximum term for outside directors is 9 years. Originally, indefinite service was possible, but the law was amended three years ago to limit it to this extent.

This year, Shinhan Holdings will effectively see no changes in its outside directors. The number will decrease from 12 to 9, with 8 existing outside directors renewing their terms and the remaining one being an outside director appointed last year for a 2-year term.

Hana Financial Holdings also has many outside directors remaining. Out of 8 total, only 2 will leave. Besides Director Heo Yoon entering his 9th year, three others who have completed 5-year terms decided to stay, entering their 6th year. Additionally, there is one each entering their 3rd and 2nd years. If there are outside directors with long tenures at Shinhan Bank or Hana Bank who renew their terms, more 'iron rice bowl outside directors' could emerge.

Outside directors serving concurrently at Woori Financial Holdings and Woori Bank, namely Noh Sung-tae, Park Sang-yong, and Jang Dong-woo, who have served for 6 years, have expressed their intention to resign, resulting in three replacements. However, among those serving their 4th year, two directors (Jung Chan-hyung and Kim Jun-ho) will extend their terms by one year, becoming 5-year term directors.

In the case of KB Financial Holdings, directors who have served 5 years will be replaced. However, three directors with relatively shorter tenures (Kim Kyung-ho, Kwon Sun-joo, Oh Kyu-taek) are expected to renew their terms this year, entering their 5th, 4th, and 4th years respectively.

As a result, although financial holding companies have begun board reshuffles, they cannot escape the issue of long-term service of outside directors. For reference, NH Nonghyup Holdings only had one director renew their term.

Not Changing or Unable to Change?

Why do financial authorities want to supervise the role of outside directors? Authorities criticize that outside directors, who decide major management matters, remain on boards for long periods, building 'trenches' for the chairman and acting as rubber stamps. Although the chairman's term is 3 years, it is rare for them to step down after just one term. With reappointments and even triple or quadruple renewals, the focus shifts to short-term performance competition. Authorities believe this environment contributed to incidents like incomplete sales and large-scale embezzlement, as seen in the case of Woori Financial Holdings. Therefore, authorities consider it important to prevent long-term retention of outside directors.

Despite this atmosphere, financial companies have not made more extensive changes because it is difficult to find candidates willing to serve as outside directors. Recently, a CEO of a financial company reportedly contacted several candidates to propose outside director positions but returned empty-handed.

A financial holding company official said, "We know that reappointment of outside directors is almost considered a 'sin' under this administration, but financial company outside directors cannot concurrently serve as outside directors in other industries, so the position is unpopular. Candidates with the necessary capabilities and experience tend to be financially well-off and find the increased scrutiny and oversight by financial authorities 'tiring,' so they decline."

Another financial holding company official said, "Because candidates must be thoroughly vetted and managed over the long term, if no one among them is willing to serve as a new outside director, it is impossible to suddenly find and appoint someone else." Reducing the number of outside directors is also notable. Shinhan Holdings reduced from 12 to 9, and Woori reduced one each at the holding company and bank levels.

Regarding criticism that outside directors 'approve without question' in management decision-making, a representative from Financial Holding Company C said, "Because outside directors are sufficiently briefed and coordinated before board meetings, it is difficult for dissenting opinions to arise during meetings. Criticizing this as a lack of independence is unreasonable. We should not taboo the extension of terms for outside directors who fulfill their roles."