[The Editors' Verdict] Dividing Into Sides Is Undermining Corporate Governance

CEO Changes in Financial Companies Repeated with Every Regime Change
Controversy Over Government Intervention Shaking Corporate Governance

[Asia Economy Reporter Nam Seung-ryul] Commercial banks such as Shinhan and KB Kookmin have eliminated or reduced fees related to remittances and early loan repayments, and lowered loan interest rates. This is the result of widespread criticism that banks made trillions of won in profits from interest in a high-interest-rate era, as well as comprehensive pressure from financial authorities. Especially after the president emphasized the public nature of banks, they retreated as if pushed. In an era of high inflation where everything rises except salaries and children's grades, this is a welcome development on one hand.

Do the shareholders of these banks see it the same way? It is too early to calculate how much negative impact this will have on overall profits, but it is clear that these moves by banks are negative factors for stock prices and investor sentiment. Banks may feel unfair. There is a grumble of “At one time, we were scolded to move away from earning from interest rate spreads and increase fee income or non-bank sector income...” While the public nature of banks cannot be denied, banks are still private companies, so government interference in fee setting or interest rate determination can be seen as excessive.

Earlier, the chairmen of Shinhan Financial Group, Woori Financial Group, and BNK Financial Group stepped down under uneasy circumstances. It is clear that they were somewhat greedy in their “exclusive reappointments.” However, this can also be seen as a reflection of the recurring division into “my side” and “your side” every time the administration changes. They stepped down under the plausible pretext of generational change, but it is hard to deny that they were pushed out by pressure from financial authorities. Under any administration, these companies still seem to be viewed not as “financial companies” operating autonomously in the private sector, but as “financial institutions” that can be handled according to the government’s preferences.

The visible or invisible hand of the government is also stirring up what used to be called “privatized public enterprises” or “ownerless companies,” now known as “widely held companies.” KT and POSCO are major targets. These companies either have majority ownership or, even if their ownership is low, lack a clear owner, so they have suffered external pressures every time the administration changes. Although a considerable amount of time has passed since privatization, management has been swayed by administrations, to the point that one might mistakenly think they are still public enterprises.

This time is no exception. At the end of last year, KT’s sole candidate for the next CEO, Koo Hyun-mo, faced intense attacks from the government and ruling party demanding to block his “self reappointment.” The president and even the National Pension Service actively increased pressure for his resignation. Regardless of Koo’s position, the CEO seat at KT has already been severely damaged.

Corporate governance refers to the dynamics among stakeholders such as owners including the management, shareholders, creditors, and employees. It also refers to factors influencing decision-making related to corporate management, including market regulations, financial supervisory systems, and practices. Another aspect is the system that monitors and controls managers to act in the interests of stakeholders. To this end, separation of ownership and management, introduction of outside directors, enhancement of auditor independence, and strengthening of shareholder rights are promoted.

Replacing the CEO is the most sensitive issue in corporate governance because it sits at the apex of the dynamics among corporate stakeholders. All governments, including the Yoon Seok-yeol administration, have touched this issue as a means to divide “my side” and “your side,” causing numerous controversies over government intervention.

There is no definitive answer to governance. But government intervention is definitely not the solution, especially if the purpose is to divide sides. Who will break this vicious cycle that erodes governance?

Nam Seung-ryul, Head of Securities and Capital Markets Department