[Exclusive] Regulations Restricting Financial Experts from Running for Chairman... 90% of Winners Are Longtime Insiders

[Sluggish Saemaul Geumgo Reform] ⑥
Disqualification Criteria Set by Law
Must Hold Over 100 Shares for More Than Two Years
Requires Investment of Millions to Tens of Millions of KRW
Regulation Remains Unchanged Despite Innovation Pledge
Central Association: "Must Consider the Role of Mutual Finance in Local Communities"
Professional Manager System Not Established Even at the Central Association

In the first nationwide simultaneous Saemaul Geumgo chairman election held in March, ordinary members were able to directly exercise their voting rights to elect the chairman for the first time in history. Although the election was conducted only at certain branches (543 branches with an average total asset balance of at least 200 billion KRW), it was positively received for allowing member opinions to be more directly reflected compared to the previous indirect election system. However, the election structure still favored former or incumbent chairmen and executives. In particular, it was difficult to find winners with financial expertise, as there were regulations in place that restricted financial professionals from running for chairman. Even though there is a need for experts who can address the deterioration in the financial soundness of the branches, these regulations are seen as hindering innovation by holding back such candidates.

As of April 21, a review of the legal framework related to Saemaul Geumgo shows that financial professionals who are not members cannot run for chairman of individual branches. This is primarily blocked by the highest-level law, the Saemaul Geumgo Act. According to Article 21, which outlines the disqualification criteria for executives, an individual must have held a certain number of shares, as specified in the current articles of association, for at least two years in order to become an executive.

Even if a person has maintained membership for over two years, they must pay tens of millions of KRW to be eligible to run. This is evident in the required number of shares delegated by the Saemaul Geumgo Act. The Saemaul Geumgo articles of association interpret the 'certain number of shares' mentioned in the law as at least 100 paid-in shares. It also stipulates that these shares must be continuously held for more than two years. Although each branch has its own articles of association, when it comes to the disqualification criteria for executives, no branch can add additional disqualification grounds beyond those set by the central association, so these rules apply to all branches.

How much money is actually needed to run for chairman? The amount per share varies by branch, but as of September last year, the average amount per share at 1,282 Saemaul Geumgo branches was 61,626 KRW. Based on this, a candidate must have held at least 6,162,000 KRW (100 shares) as paid-in capital for more than two years. However, some branches are known to require more than 100 shares, with some demanding as many as 200 shares. In such branches, the cost exceeds 10 million KRW. The maximum per-share amount for this calculation is capped at 100,000 KRW in the articles of association, so in these cases, a candidate may need as much as 20 million KRW to run for chairman.

This provision in the articles of association has not been amended, even after the management innovation advisory committee activities that followed the bank run (large-scale withdrawal of deposits) crisis in 2023. While the articles of association have been amended 12 times since December 1998, including in 2023 when innovation was declared, the restriction on the number of shares required to run for office has remained unchanged. This undermines the declared intention to introduce professional managers.

Because such regulations remain unchanged, former and incumbent executives continued to dominate the recent simultaneous chairman elections. According to statistics from the National Election Commission, out of 1,101 Saemaul Geumgo chairman-elects, 750 were incumbents, accounting for 68.1% of all winners. Former chairmen, vice-chairmen, auditors, or directors accounted for 214 winners (19.4%). In effect, 9 out of 10 chairmanships were filled by existing executives. The occupations of elected chairmen who were not former or current executives were largely unrelated to finance. There were 46 winners who listed their occupation as self-employed, and 16 who had real estate-related jobs, such as real estate leasing.

The Saemaul Geumgo Central Association explained, "Because Saemaul Geumgo is a financial institution formed with funds from local residents, the chairman holds the most important position in realizing the principle of returning results through sound management," and added, "Rather than prioritizing financial expertise alone, we included the requirement of two years of membership in the disqualification criteria because a basic understanding of the role of mutual financial institutions in the local community and the principles of cooperative management is important."

There are also ongoing criticisms that the professional manager system has not even been established at the central association, which oversees and supervises individual branches. The management innovation advisory committee had announced plans to abolish the positions of executive director and guidance director, which concentrated authority in the hands of the central association president, and to introduce a 'chief executive officer' system to oversee all operations. However, after the actual legal amendments, the direction changed, and these positions were instead given greater authority, including personnel and budgetary powers.