The Financial Supervisory Service will launch a special inspection into how corporate governance is actually run at eight domestic bank holding companies. The Financial Supervisory Service (FSS) said it will focus on problems such as CEOs securing "self-renewed" terms and the weakening of outside directors' checks and oversight.
The Financial Supervisory Service (FSS) said on the 14th it will conduct a special inspection of overall governance-related operating conditions at all financial holding companies, including KB, Shinhan, Hana, Woori, NH NongHyup, BNK, DGB and JB Financial.
The Financial Supervisory Service (FSS) earlier, in Dec. 2023, worked with industry and academia to establish best practices for governance. It presented four themes and 30 core principles: CEO appointment and succession procedures; the board's collective coherence and independence; evaluation systems for the board and outside directors; and organizations supporting outside directors.
The Financial Supervisory Service (FSS) noted that the best practices have not been functioning sufficiently in actual management decision-making, and are being implemented only formally or bypassed during operation. It said the board's substantive vetting in CEO appointments has weakened, resulting in repeated "self-renewed" terms, and that boards and committees have been limited to retroactively approving major decisions. It also noted persistent criticism that outside directors' checks and oversight have weakened.
As an example, the Financial Supervisory Service (FSS) pointed out that Hana Financial Group changed the maximum age for directors' continued service to 70 just before selecting the long list, revising the rules in a way favorable to Chair Ham Young-joo. It also said BNK Financial Group had a 15-day calendar window for receiving internal and external candidate documents, but only five actual business days. Shinhan Bank arbitrarily interpreted the expertise item in its Board Skill Matrix (BSM), reducing diversity in board composition, and Shinhan Financial Group evaluated outside directors only through a survey and gave all of them grades at or above the standard for reappointment (excellent).
Based on the inspection results, the Financial Supervisory Service (FSS) will identify best practices and areas for improvement for each bank holding company and reflect them in discussions of the forthcoming "governance advancement task force (TF)." It will also share the findings with the banking sector to encourage voluntary improvements. The Financial Supervisory Service (FSS) explained that, under the recently revised Commercial Act, there is a growing call to improve governance soundness so outside directors can represent shareholder interests objectively and fairly. The Financial Supervisory Service (FSS) plans to continue promoting the advancement of governance in the banking sector through ongoing checks of best practice implementation and inspections.