Directors control searches

Korea’s financial industry expects big changes with new chairmen being named, but there is growing criticism that procedures for appointing the new chiefs are too subjective.

According to sources, KB Financial Group, Woori Financial Group and Nonghyup Financial Group are all in the process of replacing their chairmen. Though the process differs slightly for each group, it typically begins with formation of a nominating committee.

KB Financial Group, for example, also formed a special committee of nine outside directors. According to sources, special committee members have determined they want someone who is a good fit and can boost nonbanking businesses.

Over the past three years, KB Financial has been in a slump after being the industry leader by assets in the early 2000s. Currently, however, it is fourth with 283 trillion won ($253.1 billion) in assets after being unable to grow its nonbanking businesses, such as securities and insurance. KB Kookmin Bank’s assets represent 91.2 percent of that of the group.

The deteriorating business also been reflected in its stock value. As of Wednesday, shares of KB Financial were 37,000 won ($32.8), down 23 percent from three years ago. Over the same period, shares of Hana Financial Group, which acquired Korea Exchange Bank, jumped nearly 30 percent.

“Of all companies the National Pension Service has invested in so far, shares of KB Financial have dropped the most,” said a high-level official from the service.

The primary blame for the poor financial performance lies with management and outside directors.

Nonghyup Financial Group also is accelerating its procedure for appointing a new chairman. The special nominating committee for Nonghyup contains two outside experts, two outside directors and one official recommended by the chairman of the National Agricultural Cooperative Federation, which own Nonhyup Financial.

Though Shin Dong-kyu abruptly offered to step down due to growing internal conflict, reportedly with cooperative federation Chairman Choi Won-byeong, the committee is expected to appoint a new chairman largely based on Choi’s approval.

“There is high speculation that the committee will select a new chairman that will not cause conflict with Choi,” an industry official said.

Financial Services Commission Chairman Shin Je-yoon recently said “[the government] will come up with measures to improve the overall corporate structure of financial institutions based in mid-June.”

By Lee Sang-ryeol [angie@joongang.co.kr]