Power struggle at KB, Kookmin

An minor internal affair at a bank has developed into a conflict between top managements of the bank and its financial holding group, drawing the attention of the financial authority.

Tension is seemingly intensifying between managements of Kookmin Bank and KB Financial Group due to differences on whether to replace Kookmin’s IT network system.

The bank’s board of directors and KB Financial Group Chairman Lim Young-rok wants the system replaced.

Kookmin Bank CEO Lee Kun-ho and auditor Jung Byung-ki oppose the idea.

Yesterday was the last day that network companies could make bids to get the contract, but some hesitated because of the conflict between Kookmin Bank and its holding group.

According to a group spokesman, SK C&C was the only bidder.

Kookmin Bank, which has been using an IBM operating system, wants to change to the UNIX operating system after its contract with IBM expires in July 2015.

The UNIX operating system can supplied by many companies including IBM, Hewlett Packard, Oracle and others.

The problem began last October when the bank failed to agree in negotiations with IBM on pricing.

It decided to switch to UNIX, which is more open and therefore less safe but is also cheaper. In November, it announced a bidding process for the contract.

But last month, Kookmin CEO Lee and auditor Jung said they were opposed to the switch.

CEO Lee received a complaint e-mail from IBM Korea on April 14, and ordered Jung to look into it.

Jung concluded the switch would cost more and have more problems in terms of security.

At the last meeting of the board of directors, 80 percent of the members voted for UNIX. The CEO and the auditor were the only opponents. They demanded reconsideration by the board but were turned down. Lee brought the issue to the Financial Supervisory Service and requested an investigation.

“Replacement of the system could cost the bank more than 300 billion won ($292 million), compared to 150 billion won that is estimated to be charged if the bank decides to upgrade the current system,” said an insider of the bank. “We don’t understand why the board members reject our proposal even though it is a cost-cutting idea.”

KB Financial Group, however, has a contrary stance.

“The auditor attempted bucking the board’s legitimate decision by abusing his power,” said Kim Jae-yeol, chief information officer of the group. “Replacement of the system is a critical affair for the group, too.”

Insiders in the financial industry say a power struggle is underway.

“Since the financial holding group structure is still fragile in terms of corporate governance, power conflicts can arise within one group,” an insider said. “Parachute appointments are apparently having negative effects on the financial sector, too, as seen in the latest conflict at KB Financial Group.”

In the financial world, holding groups are supposed to have control over their affiliated banks. But that’s not always the case because the chairman posts are frequently filled given to people retiring from the government with no real banking experience.

Retiring civil servants getting plum jobs in the private sector are called parachute appointments.

Neither Kookmin CEO Lee or Chairman Lim had careers at KB.

Lim, who took office as chairman last July, served as the vice finance minister until 2008.

Lee served as head researcher at the Korea Institute of Finance until 2011.

The FSS plans an internal evaluation of Kookmin Bank next month.

BY SONG SU-HYUN [ssh@joongang.co.kr]