Banks face outside director reform

Local banks` boards of directors will be required to pick a new chairman and reshuffle one fifth of their out-of-the-company members every year, with the term of outside directors shortened to 2 years from the current 3 years, according to a new rule devised by an industry association.

The Korea Federation of Banks announced the measures yesterday as the nation`s top financial regulator has been pressuring banks to overhaul their governance structure.

It is also in line with a global move to tighten the screws on banks after the latest financial crisis.

"These are guidelines for banks and financial institutions to follow in order to enhance professionalism and independence of outside directors," the federation said in a statement. .

"However, exceptions will be allowed, given the diverse situations of local banks and financial holding companies," it said.



Under the new guidelines, out-of-company members should make up a majority of the board of directors at banks and financial holding companies whose major business is banking. The outside directors will serve two years for their initial term and one year if reappointed. They can serve for a maximum of five years.

Currently, outside directors are guaranteed a 3-year term, with no limitation on extension.

They are banned from assuming another outside-director position at financial institutions while serving at a bank or a financial holding company.

The board chairmanship will be elected annually and 20 percent of the external directors will be newly appointed each year. Stock options, and other forms of compensation linked to the company`s business performance, are not allowed for outside directors.

The guidelines come against the backdrop of a high-profile probe by the financial regulator into alleged irregularities of outside directors at the nation`s largest bank, Kookmin, and its parent KB Financial Group.

Cho Dam, the chairman of KB Financial`s board of directors, is among those facing replacement under the new rules. The group`s outside directors are accused of having too close ties with the company`s management.

Kang Chung-won, CEO of Kookmin Bank and vice chairman of the group, resigned from his nomination for the chairman`s post on Dec. 31 amid such criticism. Kang had been a unanimous choice of the group`s chairman-nomination committee, in which outside directors had more than a majority of votes.

(milaya@heraldm.com)



By Lee Sun-young