After KB debacle, FSC targets outside directors
The nation’s financial watchdog has decided to toughen the qualifications for outside directors of financial institutions based on its belief that their function of giving checks and balances to chairmen and chief executive officers has been undermined.
The Financial Services Commission (FSC) announced on Thursday enhanced guidelines for corporate governance to strengthen the sense of responsibility by top management at financial groups.
It is the first time in 16 years that the watchdog has revised the guidelines since it introduced the outside director system as a check on the power of group chairmen and large shareholders.
Starting next year, professors and government officials no longer will be able to serve as outside directors at major financial institutions.
The term of outside directors will be halved from two years to one, and holding more than two outside director titles at different institutions will be banned.
The FSC developed the tougher rules two months after the former chairman of KB Financial Group and its subsidiary bank’s president stepped down due to internal strife caused by a boardroom power struggle.
The FSC believed outside board members of the bank and holding company negatively affected the decision making process and damaged the institution’s public image and operations for personal interests.
The new rules will affect a number of outside board directors at KB.
“The corporate governance model of our financial institutions looks like it is in line with international standards from the outside, but whether the model is performing its role properly remains questionable,” said Shin Je-yoon, chairman of the FSC. “Rather than serving their intended checks-and-balances function, outside directors are turning boards into clubs as they form their own cliques within boardrooms.”
Some outside directors are nominated by top management because they are close allies, the chairman pointed out.
In the case of KB, 70 percent of outside directors are professors who lack field experience in the financial sector.
“Under the current system, outside directors have little responsibility, but enjoy privileges including excessive compensation,” said Shin said.
As of 2012, the average salary of outside directors at banks or holding companies stood at 57 million won ($51,000).
From next year, only experts on finance, management or accounting with academic background and field experiences, can be nominated as outside dirctors at financial institutions.
BY SONG SU-HYUN [email@example.com]