To become the chairman of a financial holding company, an individual must secure a certain level of approval from both the Nomination Committee and a special resolution at the shareholders' meeting, starting from the initial appointment. In particular, for reappointment or a third consecutive term, approval from at least three-quarters of the Nomination Committee is required. If just two out of seven outside directors oppose, reappointment can be blocked.
However, the original proposal to outright ban a third consecutive term for financial holding company chairmen by law, or to require unanimous consent from the Nomination Committee, was scrapped amid constitutional controversy.
According to political circles on the 2nd, the Financial Services Commission explained the "Plan to Advance Financial Company Governance" at a policy council composed of Democratic Party of Korea lawmakers on the National Assembly's Political Affairs Committee. The plan centers on strengthening the requirements for Nomination Committee and special shareholder meeting resolutions based on the number of reappointments when selecting a financial holding company CEO (Chief Executive Officer).
For an initial appointment, approval from at least two-thirds of the Nomination Committee members is required. Subsequently, at the shareholders' meeting, approval must be obtained from a majority of the voting rights held by attending shareholders and at least one-quarter of all issued shares.
For reappointment, approval from at least three-quarters of the Nomination Committee and at least two-thirds of the voting rights held by attending shareholders (and at least one-third of all issued shares) at the shareholders' meeting is required. For a third consecutive term, the Nomination Committee requirement remains the same as for reappointment, requiring at least three-quarters approval. Additionally, separate approval from three-quarters (at least half of all issued shares) must be obtained through a special resolution at the shareholders' meeting.
This represents a significant strengthening compared to current voting requirements. Currently, reappointment and a third consecutive term are possible if general resolutions pass with the consent of a majority of the board of directors and a majority approval at the shareholders' meeting.
The threshold has been raised by requiring at least two-thirds approval from the Nomination Committee starting from the initial appointment. In particular, it is analyzed that requiring three-quarters consent from Nomination Committee members for reappointment will act as a high hurdle. For example, if the Nomination Committee consists of seven outside directors, at least six votes in favor are needed to pass a reappointment proposal. If two members oppose, the reappointment fails. This applies equally to a third consecutive term.
Regarding the composition of Nomination Committees by financial holding company, KB Financial Group, Woori Financial Group, and BNK Financial Group each have committees composed of seven members (all outside directors). Shinhan Financial Group and Hana Financial Group have five and nine members, respectively. Excluding Hana Financial Group, all companies have a structure where reappointment is impossible if two or more members oppose.
In the case of special resolutions at shareholders' meetings, the threshold for a third consecutive term becomes even stricter. Most past financial holding company chairmen secured over 80% consent to achieve reappointment or a third consecutive term. To obtain three-quarters consent, at least 75% shareholder approval is required.
As the authority of the Nomination Committee is being strengthened, financial regulators have decided to include the committee chairman in the accountability structure for internal control responsibility. This means that if governance issues arise, the Nomination Committee chairman may also be subject to sanctions. Additionally, the Nomination Committee chairman must directly explain the reasons for recommending the chairman candidate at the shareholders' meeting. The minutes must record who recommended the chairman candidate and why, and this information must be disclosed transparently.
The Democratic Party of Korea and the Financial Services Commission are expected to finalize the revised Financial Company Governance Act after additional party-government consultation procedures. Even before the law is amended, there is a possibility that financial regulators will announce the governance advancement plan as early as within this month.
Accordingly, the new chairman selection procedure may be applied starting with iM Financial Group, where the current chairman selection process is underway. iM Financial Group narrowed down its pool of next chairman candidates to six (longlist) at the end of last month and plans to further narrow down the candidates by the end of this month. The term of current Chairman Hwang Byung-woo expires at the end of March next year, amid discussions about the possibility of his reappointment.
However, the draft proposal to outright ban a third consecutive term for financial holding company chairmen or require unanimous consent from the Nomination Committee has been effectively scrapped. Since President Lee Jae-myung directly criticized long-serving financial holding company chairmen as a "corrupt inner circle" in December last year, financial regulators have been seeking ways to prevent long-term reappointments of holding company chairmen. During this process, options such as legally blocking a third consecutive term or requiring unanimous consent from the Nomination Committee were discussed, but the ruling party also raised concerns about potential unconstitutionality, leading to a step back.
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