While the financial authorities are preparing measures to strengthen boards' independence to keep financial holding company chairmen from "self-renewing" their terms, the financial sector says bolstering board independence alone is not a cure-all. As seen in the past KB Financial Group case, when the chair and outside directors clash, major management agendas such as mergers and acquisitions (M&A) can be derailed.
According to the financial authorities on the 23rd, the Financial Supervisory Service will soon launch a task force (TF) to improve financial companies' governance and draw up measures to enhance board independence. President Lee Jae-myung said during a Financial Services Commission (FSC) briefing on the 19th that regarding the governance of financial holding companies, "When left alone, a corrupt inner circle forms and a small group takes turns doing as it pleases and continues to exercise control." The Financial Supervisory Service is pointing to strengthening the board's oversight of management as a solution to the financial holding company chair's self-renewal problem.
In the financial sector, there are concerns that if board independence is strengthened, the board itself could become an "oksangok (a roof on top of a roof)." A representative case is the conflict between former KB Financial Chair Eo Yoon-dae and the board over the acquisition of ING Life (now Shinhan Life).
Eo took office in 2010 and from Jan. 2011 pursued the acquisition of ING Life's Korea unit. KB Financial was selected as the preferred bidder for ING Life in Sept. 2012 but ran into opposition from outside directors. On Dec. 18 of that year, the KB Financial board put the ING acquisition to a vote and rejected it.
Of the nine outside directors, five gave "opposed" opinions and two offered "defer" opinions that were effectively opposition. The outside directors cited ING Life's high acquisition price and the saturated life insurance market. The opposition to ING Life was led by then board chair Lee Kyung-jae.
It is known that the outside directors were displeased by a commotion that Eo caused at a drinking gathering with some outside directors in Beijing, China, about a month before the board meeting. At the time, Eo's feelings toward the outside directors who opposed the ING Life acquisition boiled over, and Eo reportedly shouted and threw a glass. As news of the gathering spread outside, those involved were investigated by the financial authorities.
In March of the following year, there was also the dismissal from post of then Executive Vice President Park Dong-chang, who had been Eo's closest aide. Ahead of KB Financial's shareholders' meeting at the time, Institutional Shareholder Services (ISS), a U.S. proxy advisory firm, prepared a report saying, "The election of outside directors including Lee Kyung-jae, who thwarted the acquisition of ING Life's Korea unit, should be opposed," but before the report was written, it was revealed that former Executive Vice President Park had contacted ISS officials in Singapore.
Park was known as a close aide to Eo, but as pressure mounted for the outside directors to step down, Eo decided to dismiss former Executive Vice President Park from his post. Eo is said to have remained silent throughout the emergency board meeting that decided Park's dismissal.
KB Financial's acquisition of ING Life fell through, and Shinhan Financial Group acquired ING Life in 2018 for 2.3 trillion won, a higher price than KB Financial had offered. ING Life merged with Shinhan Life and is now Shinhan Life. Shinhan Life is currently posting annual net profit of 500 billion to 600 billion won.
Then board chair Lee Kyung-jae also took part in appointing successor Lim Young-rok after Eo stepped down. Lim, then KB Financial president and a former Vice Minister at the Ministry of Finance and Economy, was Lee's junior from the state civil service exam. Outside directors, including former chair Lee, unanimously recommended Lim for chair, but Lim clashed with then KB Kookmin Bank President Lee Geon-ho over the replacement of the bank's core system and stepped down after about a year in 2014.
Former chair Lee remained in the chair post until late 2014, when new Chair Yoon Jong-kyu took office following the resignations of former Chair Lim and former President Lee.