The financial authorities are reviewing a plan to add "practical experience" to the qualifications for outside directors at financial holding companies. The move aims to fix the practice of appointing professors as outside directors.
According to the financial authorities on the 19th, the Financial Supervisory Service plans to propose this plan to the "governance advancement task force (TF)" chaired by the Financial Services Commission. For example, when appointing an outside director to oversee the information technology (IT) field, the vetting is expected to check whether the candidate has actually worked in the relevant industry.
An official at the Financial Supervisory Service (FSS) said, "We are discussing in the direction that relevant practical experience is necessary to ensure the expertise of directors at financial holding companies."
This is a measure to improve the professor-centric structure of outside directors at financial holding companies. The Financial Supervisory Service (FSS) sees it as a problem when people without expertise serve as outside directors at financial holding companies solely because they have a degree in a related field. Because professors tend to focus on research and teaching, it is difficult for them to fully carry out the roles of outside directors, such as keeping management in check and advising on management.
Lee Chan-jin, governor of the Financial Supervisory Service, also met with reporters on Feb. 5 and said, "Boards of financial holding companies are skewed toward professors," adding, "At U.S. investment banks (IB) such as JPMorgan, people from rival firms serve as board members and there are almost no academics. We see it as a problem of whether field-centered governance is more in line with market principles."
Of the 32 outside directors at the four major financial groups, 15 (46.8%) are incumbent professors. At KB Financial Group, 4 of 7, and at Shinhan Financial Group, 5 of 9 are professors. At Hana Financial Group, 3 of 9, and at Woori Financial Group, 3 of 7 are incumbent professors.
The Financial Supervisory Service (FSS) plans to review overall governance-related conditions at eight financial holding companies—KB Financial, Shinhan Financial, Hana Financial, Woori Financial, NongHyup Financial, iM Financial Group, BNK Financial Group, and JB Financial Group—through Feb. 23. The focus is on whether financial holding companies are merely complying on paper with the "governance best practices" established in 2023 or are sidestepping them through loopholes. Based on this review, the TF plans to prepare measures to improve the governance of financial holding companies by March.