According to investment banking (IB) industry sources on Feb. 27, foreign shareholders at KB Financial Group officially expressed their negative views on the introduction of a labor union board member recommendation system.
A senior official from KB Financial said, “Some foreign shareholders strongly expressed dissenting opinions about the system saying they don’t understand why the labor union has the so-called royal road, though the process and system of nominating non-executive directors are working well and it doesn’t harm interest of shareholders.”
KB Financial has been already running “non-executive director candidate recommendation system,” which allows any shareholder that has more than one share of KB Financial to recommend a candidate for outside directors. The company put up candidates for non-executive directors at a general meeting of shareholders after reviewing them by the appointment advisory committee. However, the labor union asks the management to directly put up candidates for non-executive directors they recommend at a general meeting of shareholders without the internal procedures.
The labor union expresses concerns over the fact that their candidates can be eliminated from the list during the internal procedure but foreign shareholders say that the labor union can make an exception and must follow the internal procedural rules. KB’s outside director selection system is so well-equipped that it has won high praise even by external civic groups. KB Financial selects a candidate for non-executive directors through three steps – recommendation from shareholders or external consultants, review by the appointment advisory committee and review by the president recommendation committee.
An official from KB Financial said, “We are recommended for candidates for outside directors through various routes and cast a vote for them when their abilities are proved through our internal qualification procedures. But, the labor union insists to directly vote on candidates they recommend without internal procedures, involving in unfair practice.”
There are also concerns that there will be more downsides, such as excessive management intervention and lower management efficiency, than upsides, including transparent management, when candidates recommended by the labor union become non-executive directors.
So, foreign shareholders at not only KB Financial but also other financial firms express concerns. In fact, Shinhan Financial Group’s labor union put off the recommendation of outside directors until the next general meeting of shareholders, while Woori Bank’s labor union is planning to introduce the labor union director recommendation system after selling the government’s stake and adopting the holding company system. There is a growing antipathy towards the idea among foreign shareholders at KB Financial at the moment but other major financial firms are expected to see their foreign shareholders express more animosity over the labor union director recommendation system as time goes by.