KB: Cut government ties

KB Financial Group is in tatters. Kookmin Bank had been by far the country’s largest bank following its merger with the state-funded Housing & Commercial Bank. But the glory days are long gone, with assets dwindling from double its closest competitor’s at their peak. KB now lags far behind in management efficiency. Euh Yoon-dae, the head of the Presidential Council on Nation Branding and former classmate of President Lee Myung-bak, has been nominated to head the financial holding company.

Euh, former president of Korea University, has frequently said the financial sector needed a world-class company like Samsung Electronics. We suggest two things in the hope that the chairman will succeed in fulfilling his vision of advancing the country’s financial industry at KB.

First, he must strive to cut the holding company’s ties with the government. KB is a private corporation and the government now has no stake in the bank. Yet the bank has been dogged by controversy over government meddling in its affairs. The government played a part in pushing the bank’s chief executive officer out of office and selecting a new CEO. Rumors spread in the financial market that the president personally picked the nominee. KB has declined partly because of government involvement.

The nominee should also work on his end. If it’s necessary for the bank’s future, he should at times contradict or confront the government. He must overhaul the bank’s governance to eradicate suspicion of connections with the government. Seeking out and nurturing his own heir is one idea. If the bank openly provides chances and an environment for new talent to bid to become part of the next leadership, the government won’t be able to meddle with KB’s affairs.

Second, the new CEO must present a feasible vision for the holding company after thorough debate with other KB executives. So far, nominee Euh had been less discreet. He talked of creating a mega-bank, including the option of mergers and acquisitions, upon his nomination. That kind of talk is irresponsible and can cause confusion in the market. A corporate vision and strategy cannot be decided by the CEO alone. He should have at least discussed his plans in detail with other board members. We understand his eagerness, but he should be able to differentiate between passion and arrogance.

What is more urgent is to make the bank more efficient. It is dangerous to think of expanding KB’s size without fixing its internal problems. Euh can think of increasing the size of the facade after working to reinforce the support structure. He may have started on the wrong foot amid controversy about his ties with the president, but we hope he will end up successful.