[Viewpoint] Bank brawl highlights problems

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[Viewpoint] Bank brawl highlights problems

Fighting rarely helps. You either hit or you get hit. And the bigger the fight, the deeper the scars.

But more unbearable than the physical pain is the bruised pride that results from fights. That’s why some of the most powerful forces rarely lose their head and pick fights. Still, they may have to throw punches if they’re overly antagonized.

Such is the case with the knock-down, drag-out battle between KB Financial Group and financial authorities. The authorities certainly picked this fight, telling Kookmin Bank Chief Executive Kang Chung-won to delay his efforts to take the chairman post at the company’s parent, KB Financial. Kang refused and proceeded with the process, regardless of a lack of rivals for the spot. He ran the race as the sole candidate and won.

The financial watchdog hit the roof, immediately ordering an investigation. Skeletons were pulled out of the closet, and word slipped out that Kang’s annual pay ranges anywhere from 4 billion won ($3.6 million) to 10 billion won. The country’s largest bank complained that the government had overstepped its boundaries, meddling with an executive appointment at a bank in which it has no stake.

Watching a fight is always amusing. The more dirt and smoke, the more entertainment we get. It is interesting to know the extent of the Financial Supervisory Service’s power and what a bank CEO can do. There has been talk that the presidential office has even gotten involved, suggesting that authorities want the situation to quiet down. Usually by this time, the CEO would get the message and back down. But that has not been the case with this particular CEO. Kang, in an unexpected move, removed former FSS senior official Kim Jung-hoe from the KB Financial Group presidential post. KB said the replacement was planned and there had been ample notice. But current FSS officials took it personally. Kim, after all, had been popular at the FSS, and his sacking meant war.

Kang has his reasons to remain undaunted. He has done nothing out of the ordinary. To be a chairman of the country’s largest financial group is actually not so difficult. He only had to befriend half of the outside board members. So he did exactly that.

The rule, in fact, was actually set by the government, which requires banks to set up a board of outside directors to oversee its operations and name the chief executive. The government had sold off all its stock holdings in the former semi-state bank and therefore has absolutely no say in the affairs of the bank. But yet it insists on some kind of behind-the-scenes deal between the CEO and directors.

Kang is not the first to take this path in the banking world. Shinhan Bank and Hana Bank converted to the financial holding company system in 2001 and 2005, respectively. Bank presidents then became the chairmen of the financial holding groups. Chairman Ra Eung-chan has been running Shinhan’s operations for 19 years now, while Kim Seung-yu has been doing the same at Hana for 13 years. Financial authorities saw no harm in it.

So Kang naturally harbored a dream of long-term leadership, and the consensus is on his side. The game is no longer a matter of ability or qualification, but corporate freedom versus government interference.

Excess is the cause of every problem and especially applies to the Korean financial industry. In the wake of the 1997 financial crisis, government involvement was targeted as the main culprit of the disaster. Slack management under government patronage weakened banks and required massive public funds to bail them out. Financial policies therefore were centered on privatizing the banks and turning them as independent as possible. But again we have gone too far. Now no one can supervise or take responsibility over the banks.

It is better if this fight gets bigger to shed light on the problems in the banking industry. The solution is simple: We need a system that allows able executives to endure, yet ousts those deemed incompetent. It sounds simple, but strangely it has failed to take root here.

*The writer is business news editor of the JoongAng Sunday.

by Lee Jung-jae
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