South Korea's ruling party and the government have decided to tighten voting requirements for the reappointment of financial holding company chief executives rather than ban third terms outright. Options under review include requiring unanimous consent from the board's executive nomination committee, which selects chairman candidates, and elevating the matter to a special resolution at shareholder meetings. A blanket restriction on third terms had been pursued, but concerns within the ruling bloc that it could raise constitutional questions, along with a National Assembly finding that it does not match global standards, influenced the shift.
A Democratic Party official told Seoul Economic Daily by phone on the 26th that regarding the plan to improve governance at financial holding companies, "one option under review would require 100% consent from the nomination committee for a CEO seeking a third term, and 75% consent for a second term." The official added, "Since discussions are still under way, we are continuing to review various alternatives and appropriate voting thresholds."
Nomination committees that select CEO candidates at financial holding companies are generally made up of outside directors. At KB, Hana and Woori Financial Group, the committees consist entirely of outside directors and take part in the CEO appointment process. If the third-term requirement is set at unanimous committee consent, opposition from even a single outside director would halt a third-term bid. Currently there is no separate voting procedure when the committee recommends a CEO candidate. The ruling party and the government believe the approach would strengthen the independence and authority of outside directors while restoring the board's ability to check and monitor management.
The Financial Services Commission had initially reviewed a ban on third terms for financial holding company chairmen but is now understood to have changed course. A Democratic Party lawmaker on the National Assembly's National Policy Committee said of the proposed ban, "Concerns were raised by ruling party lawmakers that it could pose constitutional problems."
Views calling for caution on an outright ban have also emerged in the National Assembly. Rep. Shin Jang-sik of the Rebuilding Korea Party earlier introduced a bill to amend the Act on Corporate Governance of Financial Companies to cap the tenure of financial holding company CEOs at six years. But Kwak Hyun-jun, chief expert adviser to the National Policy Committee, said in a review report, "It is confirmed that cases of restricting the reappointment of directors, or CEOs, themselves are difficult to find abroad," adding that "the need to improve governance at financial companies and the need to respect managerial autonomy should be weighed together."
The National Policy Committee held a plenary session the same day and tabled amendments to the Act on Corporate Governance of Financial Companies that would strengthen CEO reappointment procedures, submitted by Reps. Kim Hyun-jung, Park Hong-bae and Shin Jang-sik. The amendments would elevate CEO reappointment to a special resolution item at shareholder meetings. At present, candidates recommended by the nomination committee are elected through an ordinary resolution, requiring a majority of voting rights of shareholders present and one-quarter of total shares issued.
Under a special resolution, approval would require at least two-thirds of the voting rights of shareholders present and at least one-third of total shares issued. The amendments also stipulate that individuals recommended by a newly created shareholder committee be appointed to the nomination committee.
Doubts have been raised about the effectiveness of the measures. Kwak said of the plan to elevate the threshold to a special resolution, "Looking at recent shareholder meeting results at the four financial holding companies, reappointment resolutions have often passed with approval rates above 80%," and assessed that "the actual effect would be limited, while there is concern about criticism that it amounts to excessive restriction on the private sector." Shinhan Financial Group Chairman Jin Ok-dong and Woori Financial Group Chairman Yim Jong-yong, both reappointed this year, were reelected with 87% and 99% approval from shareholders present. On the shareholder committee's power to recommend nomination committee members, Kwak said, "Consideration is needed as to whether it is appropriate for a shareholder committee representing only some shareholders to recommend nomination committee members." The ruling party and the government plan to announce measures to advance financial company governance next month after further discussions.
