Following Strong Criticism from Lee, FSC Vows to Reform "Share-the-Spoils" Governance at Banks

Financial Services Commission Holds First Meeting of the "Task Force for Advancing Financial Sector Governance"
Vice Chairman Kwon Daeyoung: "We Will Reform Unreasonable Governance Practices"
Kwon: "Legal Amendments Will Be Considered If Necessa

Kwon Daeyoung, Vice Chairman of the Financial Services Commission. Photo by Jo Yongjun

After President Lee Jaemyung strongly criticized the practice of reappointing financial holding group chairmen as a "corrupt inner circle," financial authorities have embarked on full-scale efforts to improve the governance structure of financial companies.

Kwon Daeyoung, Vice Chairman of the Financial Services Commission: "We will address unreasonable practices in the governance of banking holding groups"

The Financial Services Commission announced on January 16 that it held the first meeting of the "Task Force for Advancing Financial Sector Governance" at the Government Complex Seoul in Jongno-gu, Seoul, in the morning. This meeting was organized as a follow-up measure after President Lee strongly criticized the opaque governance structures of financial companies during the Financial Services Commission's presidential work report on December 19.

Kwon Daeyoung, Vice Chairman of the Financial Services Commission, who presided over the meeting, stated, "Financial companies are a crucial part of the capital intermediation infrastructure, so public interest is necessary, and their governance must be fair and transparent." He continued, "However, in the case of banking holding companies, there have been ongoing criticisms regarding the closed nature and entrenchment in the process of appointing and reappointing holding company chairmen."

Vice Chairman Kwon pointed out, "By settling for a share-the-spoils approach to governance, these companies have continued outdated business practices centered on interest margins, failing to meet the expectations of the times and the public, and have shown disappointing behavior."

He added, "Through the discussions of the task force, we will enhance the independence and diversity of financial company boards. We will promote measures to increase the independence and diversity of boards, such as appointing outside directors, so that boards can perform their unique roles and responsibilities independently from management."

He continued, "To dispel the distrust that the CEO appointment process is operated in a closed manner among a select few, we will establish measures to ensure that transparent, open, and competitive succession programs-ones that anyone can accept-are implemented. In particular, we will consider ways to strengthen shareholder oversight regarding CEO reappointments."

"We will also enhance the rationality of the performance-based compensation system"

He also announced plans to improve the rationality of the performance-based compensation system. Vice Chairman Kwon argued, "Compensation systems that induce excessive short-term performance orientation can lead to reckless business practices and lax internal controls, resulting in consumer harm. We will design compensation systems to be linked to long-term value, improve the practice of excessive performance bonuses through shareholder monitoring, and also consider measures to claw back overpaid performance-based compensation."

He remarked, "Given the high level of market demand and the limited time available, we cannot simply wait for financial companies to self-regulate. To ensure that governance reform does not remain a mere slogan, we will conduct thorough fact-finding, rigorously inspect and evaluate from the public's perspective, and swiftly institutionalize and legislate improvement tasks."

The task force meeting included participation from the Deputy Governor in charge of banks at the Financial Supervisory Service, the Korea Institute of Finance, academia, the legal community, and other experts. The group plans to discuss ways to improve the independence of banking holding company boards, enhance the fairness and transparency of CEO appointments, and improve the rationality of performance-based compensation operations in the financial sector.

The Financial Services Commission plans to prepare governance improvement measures by March after sufficient discussion. For institutional improvements requiring legal amendments, the commission will also pursue revisions to the "Act on Corporate Governance of Financial Companies" to reflect these changes.