FSC unveils governance overhaul

As part of efforts to boost transparency at financial holding companies, the government yesterday announced measures to overhaul the country’s corporate governance structure, including reinforcing the board of directors’ role and authority to prevent management from exercising excessive power.

According to the Financial Services Commission, boards of directors including outside directors at financial holding companies will be given more power and responsibility than in the past.

There have been concerns that boards of directors are not playing a sufficient role as a check on management’s authority.

The FSC said yesterday the board of directors should be directly involved in screening and nominating a chief executive through a permanent executive nominating committee under the board. Currently, committee is operated on and off as needed. The permanent committee will be in charge of managing potential chief executive nominees, recommending and authorizing executive-level employees.

There have been criticism of so-called “parachute appointments” whenever a new administration comes in.

“With the setting up of a committee within the board of directors, we hope there will no longer be an ‘unseen hand’ controlling [the appointment],” said Park Kyung-suh, professor at Korea University.

Since April, the FSC formed a task force headed by Park to come up with measures to improve Korea’s corporate governance structure. According to the FSC, the task force met seven times to discuss issues related to the structure of corporate governance and came up with the measures announced yesterday. Some measures will be mandatory while others will be guidelines in principle.

In response to concerns that the board could be given too much authority and guaranteed long tenures, the FSC included measures to advise financial holding companies not to give them second tenures if their performance is lacking based on an outside evaluation every two years. It’s widely been the case that outside directors are guaranteed five years in office at most. Industry insiders have raised complaints, saying that though outside directors don’t take part in board of director meetings, they reap a large salaries.

There is still criticism against the measures announced yesterday by some who say are not strong enough. In fact, over the past several months, there have been reports the government was mulling ways to limit the tenures of a chief executive and outside directors. Such a measure, however, wasn’t included.

“The task force members agreed that if the government pressures financial holding companies with direct regulations, there could be side effects,” said Lee Jae-yong, official from the Financial Supervisory Service. “The task force will discuss follow-up measures in the second half of this year and come up with a second round of measures soon.”

BY LEE EUN-JOO [angie@joongang.co.kr]