Lee assails entrenched leadership at financial holding firms

President Lee Jae-myung on Dec. 19 raised concerns about governance issues at financial holding companies during work briefings with the Financial Services Commission and the Financial Supervisory Service. “When left unattended, corrupt inner circles form, and a small group arbitrarily takes turns exercising control,” Lee said. “They move back and forth between serving as group chairman and bank chief, holding power for 10 or 20 years.” In response, the Financial Supervisory Service said it will use a task force on governance improvement to identify legislative reform measures by next month.

It has long been criticized as common practice in the financial sector for chief executive officers to effectively secure self-renewals, while boards of directors meant to provide oversight merely rubber-stamp decisions. Since the transition to a financial holding company system in the early 2000s, it has not been unusual for group chairmen to serve consecutive terms or even be reappointed for a third term. Once in office, a chairman fills the board with loyalists, consolidates power, excludes rival factions and builds a long-term control base. Critics say that as internal monitoring and checks fail, a culture of self-preservation takes hold, undermining corporate competitiveness.

Controversy over opaque, behind-the-scenes selection processes has resurfaced in recent appointments of major financial holding company chairmen. At Shinhan Financial Group, where the chairman’s reappointment was recently confirmed, and at Woori Financial Group, where the incumbent is seeking another term, transparency was questioned because external candidates were not disclosed during the selection process. At BNK Financial Group, where the current chairman’s reappointment was also confirmed, the candidate application period lasted only four days, prompting criticism of a rushed appointment. Although the Financial Supervisory Service established best practices for financial holding company and bank governance two years ago, these long-standing issues remain unresolved.

While improving the governance of financial companies is essential, caution is needed against excessive state intervention in private firm management, often described as government-led control. During the Yoon Suk Yeol administration, financial authorities exerted strong pressure on financial companies, emphasizing the public role of banks and the advancement of governance. This prompted several financial group chairmen to abandon reappointment bids after being told that “wise judgment” was expected. However, these positions were subsequently filled by figures from presidential campaign teams or former bureaucrats. A proposal now under review by the Financial Supervisory Service to allow the National Pension Service to directly recommend outside directors to financial holding companies should also be approached carefully, as it could be seen as an effort by the government to intervene in bank management through the pension fund.

Banks and other widely held companies without a dominant controlling shareholder are privately owned, but their strong public character makes establishing fair and transparent governance essential. Policymakers must pursue measures that lead to meaningful governance improvements without undermining board independence or market trust. It is time to end practices that swing between the extremes of entrenched internal cartels and externally imposed parachute appointments.