[The Editors' Verdict] Reflections on the 'CEO Expertise' Issue Sparked by the NongHyup Incident

On the 11th, NH Investment & Securities held a meeting of the Executive Candidate Recommendation Committee and an extraordinary board meeting, ultimately selecting Yoon Byung-woon, CEO of NH Investment & Securities IB1 Division, as the final candidate for president from among three candidates: former NongHyup Central Association Vice Chairman Yoo Chan-hyung, Yoon, and former Samsung Securities Vice President Sa Jae-hoon.

Originally, Kang Ho-dong, the new chairman of NongHyup Central Association, which owns 100% of NongHyup Financial Group, the parent company of NH Investment & Securities, met with Lee Seok-jun, chairman of NongHyup Financial Group, on the 7th and expressed his intention to recommend former Vice Chairman Yoo as the presidential candidate. However, Chairman Lee rejected Kang's request. Chairman Kang believed that Yoo, a 'NongHyup man,' was suitable to create synergy with other affiliates as NH Investment & Securities marked its 10th year since acquisition, while Chairman Lee argued that Yoo lacked expertise due to no experience in the securities industry.

Although the conflict between NongHyup Central Association and NongHyup Financial Group has been temporarily resolved, this incident highlights the need to seriously consider the 'expertise issue' when selecting CEOs of financial holding company affiliates.

Every group or financial holding company has a parent company or a core affiliate. Since the parent or core affiliate holds the power of the group or holding company, CEO positions in other affiliates are often filled by people from the parent company. This is to provide positions for those sidelined within the company, easing personnel management. In the case of NongHyup Central Association, there is also a significant meaning of 'taking care of' insiders.

While this might not matter much in general companies, financial companies are different. In the 'finance' sector, where trust is fundamental and risk management is key, 'expertise' is essential. Even within finance, banking, securities, and insurance each require distinct expertise.

Hwang Young-gi, former chairman of Woori Financial Group and Woori Bank, who came from a securities background, aggressively promoted the investment banking (IB) division and invested about 1.6 trillion won in U.S. collateralized debt obligations (CDOs) and credit default swaps (CDS). When the 2008 global financial crisis hit, almost the entire amount was lost. This was because risk management, which is crucial in banking, was handled as if it were a securities firm. Other financial holding companies with chairmen or bank presidents from banking backgrounds did not experience such incidents. At that time, a deputy head of Shinhan Bank recalled privately, “BNP Paribas brought CDOs, saying they were AAA-rated but had high interest rates. When we checked, there was no collateral; the underlying assets were unclear. We refused to buy them, and a few months later, the Lehman crisis occurred.”

In bank-centered financial holding companies, CEO positions of securities, insurance, and card affiliates were mostly held by deputy heads of the core bank affiliate. Securities firms must manage risks but operate under much greater risk than banks. However, securities personnel often expressed frustration that when they tried to do something, bank-origin CEOs would say, “It’s too risky,” or “What if you suffer a big loss?” In insurance companies, it was said, “Bank-origin CEOs are unfamiliar with insurance terms and almost have to learn everything anew when they first arrive.”

Recently, securities experts have increasingly been appointed as CEOs of securities affiliates within bank-centered financial holding companies. If there is no suitable internal candidate, securities experts are sometimes recruited externally. However, many insurance affiliates of bank-centered financial holding companies still have CEOs from banking backgrounds. Card companies previously had card operations within banks, and since banking and card operations are not significantly different, having bank-origin CEOs is generally not problematic.

The final decision to select a securities-origin CEO as the candidate for NH Investment & Securities CEO is desirable. This tradition should continue. Taking this NongHyup incident as an opportunity, the expertise of financial affiliate CEOs will be properly scrutinized.