As Lee Chan-jin, head of the Financial Supervisory Service, remarked that the National Pension Service should also be allowed to recommend outside directors for financial holding companies, KB Financial is expected to come under direct influence if the plan takes shape. KB Financial plans to begin procedures to select its next chair in mid-next year, and the National Pension Service, KB Financial's largest shareholder, has signaled it will actively exercise shareholder rights only with respect to KB Financial among major financial holding companies.
According to the financial authorities on the 18th, the Financial Supervisory Service plans to hold the first meeting of its task force to improve governance of financial holding companies within this month. In May, the Financial Supervisory Service announced "Achievements in advancing bank holding companies and governance and future plans," saying it would push to introduce control procedures to oversee long CEO tenures.
The Financial Supervisory Service plans to review securing diversity and independence of outside directors and improving the reappointment structure of financial holding company chairs, and is seeking to intervene through the National Pension Service. At a meeting with financial holding company chairs on the 10th, Lee Chan-jin, head of the Financial Supervisory Service, said, "As the institution representing all citizens recommends shareholders, diversifying channels for recommending outside directors and differentiating the terms of outside directors should support forming a candidate recommendation committee with independence and its fair operation." The "institution representing all citizens" mentioned by Lee was interpreted as the National Pension Service.
President Lee Jae-myung also, in a briefing on National Pension Service affairs, called for strengthening the stewardship code (fiduciary responsibility of institutional investors), saying, "Since (the National Pension Service) holds citizens' stocks, it should exercise voting rights; if it exercises its power excessively it becomes state capitalism, so that should not happen, but there should be at least minimal control."
Under the Financial Investment Services and Capital Markets Act and its enforcement decree, a shareholder holding 5% or more equity in a listed company, like the National Pension Service, must choose and disclose whether its purpose for holding the stake is simple investment, general investment, or participation in management. The National Pension Service holds more than 5% of major financial holding companies, but only its purpose for holding KB Financial shares is classified as general investment. The purpose for holding shares in other financial holding companies is simple investment.
Simple investment means exercising only the minimum rights as a shareholder—such as voting rights, rights to subscribe to new shares, and dividends—regardless of company management. General investment means there is no intent to influence control rights, but the shareholder will engage in active shareholder activities such as submitting shareholder proposals.
Yang Jong-hee's term as KB Financial Group chair runs until November next year, and KB Financial plans to form a chair candidate recommendation committee (chair search committee) in mid-next year. The KB Financial chair search committee is composed entirely of outside directors, and the terms of five of the seven outside directors end in March next year. If the National Pension Service comes to recommend KB Financial outside directors, the structure would allow it to influence the selection of the next chair.
At Shinhan Financial Group, Jin Ok-dong's consecutive term was recently confirmed, and at Woori Financial Group the process of selecting the next chair is almost finished, leaving little room for National Pension Service involvement.
The Financial Supervisory Service is set to hold a sanctions review meeting today on the misselling of Hong Kong ELS. KB Kookmin Bank, which had the largest sales amount, is expected to face a penalty surcharge in the trillion-won range, and if sanctions are imposed, it may file an objection or administrative lawsuit. A financial industry official said, "KB Financial is scheduled to select its next chair next year and will have to spar with the financial authorities over the ELS penalty surcharge as well; if National Pension Service recommendations of outside directors begin, it will be burdensome."
The industry is concerned that the Lee Jae-myung administration is seeking to exert influence over KB Financial's governance through the National Pension Service. If the government intervenes in management of financial companies, independence may be weakened and soundness could also be affected.