Bar Raised for Long-Term Reappointment of Financial CEOs... FSS: "Succession Procedures Should Begin Six Months in Advance"

Encouraging Early Initiation of CEO Succession Procedures at Banks and Holding Companies
Strengthening Oversight by Shareholders
Jin Okdong, Lim Jongryong, and Yang Jonghee's Terms Expire Next Year

Yonhap News Agency

The conditions for long-term reappointment of financial holding company and bank CEOs are expected to become more stringent in the future. Financial authorities are moving to extend the current three-month period for operating CEO succession programs at financial institutions to six months, while also seeking to strengthen shareholder oversight.

On May 27, Kim Byungchul, Deputy Governor in charge of banks and small finance at the Financial Supervisory Service (FSS), held a briefing titled "Achievements and Future Plans for Advancing Bank Holding Company and Bank Governance," where he made these remarks.

Kim emphasized the need to discuss with the financial sector the earlier initiation of CEO succession procedures for banks and holding companies. He stated, "The timing for selecting CEO candidates, such as the chairman, should be extended beyond the current three months, considering the opportunity for nurturing candidates to a level where they are ready for succession." He added, "It is a task to set a target period in connection with other training programs."

This means that each financial company should identify potential candidates early in line with its mid- to long-term goals and strategies, foster and verify them, and organically link these efforts to the final candidate selection process. The aim is to enhance the objectivity and fairness of the succession process.

To promote sound governance in the domestic banking sector, the FSS established best practices for governance in December 2023. In accordance with these guidelines, all holding companies and banks revised their internal regulations to require the initiation of CEO succession procedures at least three months before the expiration of the current CEO's term.

Kim commented, "Although there were no procedural violations in the appointment or reappointment of major holding company chairmen before and after the introduction of best practice guidelines, we assess that there were some shortcomings when viewed in light of the fundamental purpose these best practices aim to achieve."

This indirectly refers to a previous case where controversy arose over a "self-amendment" of internal governance rules, allowing the chairman to serve a full three-year term upon reappointment. At the time, FSS Governor Lee Bokhyun also pointed out, "While there was no formal violation of the best practice standards in terms of procedure, the effectiveness of the appointment process seemed to be only about half."

The FSS is also considering utilizing external organizations to enhance the fairness and objectivity of evaluations of the expertise of bank and holding company CEO and outside director candidates, as well as board and individual director performance evaluations. In addition, the FSS plans to discuss with the banking sector the establishment of best practices related to digital governance.

Digital governance refers to the overall policies, procedures, governance structures, and control systems established to ensure the integrity and security of customer data at financial institutions, as well as the ethicality and fairness of artificial intelligence (AI) algorithms.

The FSS also plans to newly implement various board communication measures, such as holding meetings with subcommittees of bank and holding company boards and conducting individual interviews with directors specializing in different fields.

Meanwhile, Jin Okdong, Chairman of Shinhan Financial Group, and Lim Jongryong, Chairman of Woori Financial Group, will see their terms end in March next year. In the case of Yang Jonghee, Chairman of KB Financial Group, his term will end in November next year. Under the Yoon Suk Yeol administration, all five major financial holding company chairmen have been replaced.