'Tightening Control on "So-yu Bunsan Companies" Governance
Foreign Shareholding Exceeds 60%... Impact Seen as Limited'
About a week before the Shinhan Financial Group shareholders' meeting, the largest shareholder, the National Pension Service (NPS), decided to oppose the agenda to appoint Jin Ok-dong as an inside director, drawing attention to the outcome. While some point out the need to closely monitor the situation as the government is targeting the governance of 'widely held companies,' others predict that the impact will be limited given the nature of financial companies with foreign ownership exceeding 60%.
According to the financial sector on the 17th, the NPS Stewardship Committee held its 2nd meeting of the 2nd term the day before and decided to oppose the agenda to appoint Jin as an inside director at the Shinhan Financial Group shareholders' meeting scheduled for the 23rd. The Stewardship Committee is a body that deliberates on the exercise of shareholder rights by the NPS, which holds a 7.96% stake in Shinhan Financial Group as its largest shareholder.
Regarding the opposition decision, the Stewardship Committee explained that it was made "considering reasons such as damage to corporate value and negligence of monitoring duties." Industry insiders believe the committee held Jin accountable for the 'Lime Asset Management scandal.' Jin, while serving as the CEO of Shinhan Bank, received a minor disciplinary action of a 'cautionary warning' from the supervisory authorities in April 2021 due to the Lime incident.
In addition, the committee also decided to oppose the reappointment of inside director candidates Sung Jae-ho (professor at Sungkyunkwan University School of Law) and Lee Yoon-jae (former Presidential Office Secretary for Finance and Economy). A Shinhan Financial Group official explained, "It is believed that the National Pension Service is raising issues related to the Lime scandal."
Within the financial sector, there is heightened attention to the NPS's opposition decision amid the government's focus on the governance of so-called ownerless widely held companies. This is because attempts to renew the terms of CEOs of financial holding companies, which are representative of widely held companies, have repeatedly failed in the past.
However, there are also views that the NPS's opposition is unlikely to significantly affect the shareholders' meeting results. This is because the characteristics of financial companies with a majority of foreign shareholders must be considered. As of the end of last year, the NPS held a 7.69% stake in Shinhan Financial Group as the largest shareholder, but the foreign ownership ratio of Shinhan Financial Group reached 62.87% as of the day before. In 2020, the NPS also opposed the reappointment of Chairman Cho Yong-byeong due to hiring irregularities, but the agenda to appoint Chairman Cho was passed without difficulty at the shareholders' meeting.
Unlike the global proxy advisory firm ISS, which recommended opposing the reappointment of outside directors (8 members), ISS decided to recommend supporting the agenda to appoint Jin as an inside director, which is also expected to have an influence. ISS has often expressed opposition to the appointment of the next chairman candidate.
Regarding Jin, ISS explained the reason for its support recommendation, stating, "He played a key role in improving Shinhan Financial Group's risk management," and "implemented measures to prevent recurrence through customer compensation related to the Lime incident, strengthening internal control systems, and revising key performance indicators (KPIs) for employees involved in selling high-risk products."
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