Contemplating the Future Amid 'DLF Severe Disciplinary Action'... What Will Son Tae-seung Decide? (Comprehensive)

Legal Action Brings Burden of 'Direct Confrontation with Authorities'
Withdrawal Could Cause Governance Confusion at Woori Financial Group

Son Tae-seung, Chairman of Woori Financial Group and President of Woori Bank

[Asia Economy Reporter Kim Hyo-jin] "Give me time to think." Sohn Tae-seung, Chairman of Woori Financial Group and CEO of Woori Bank, said this at an extraordinary board meeting on the 31st of last month. It was right after receiving a heavy disciplinary decision from the Financial Supervisory Service (FSS) regarding the overseas interest rate-linked derivative-linked fund (DLF) incident.

It does not seem likely to take long to make a decision. The options are divided into two: either to take legal action to contest the FSS decision or to give up reappointment. Whatever choice Chairman Sohn makes after careful consideration, it is expected to have a considerable impact on the financial sector.

According to the financial sector on the 3rd, Sohn is expected to announce his position regarding his tenure at the regular board meeting of Woori Bank scheduled for the 7th, which will include the settlement report. There is also speculation that he might express his stance earlier through an emergency board meeting.

In principle, one could consider temporarily nullifying the sanctions through administrative litigation and accompanying injunctions to suspend the effect of the disciplinary measures.

The reprimand decided by the FSS’s disciplinary committee is a heavy sanction. If confirmed, he can complete the remaining term but cannot be appointed as a new executive in the financial sector for three years. Sohn was recommended last December as the next chairman for a three-year term. According to schedule, he will be officially appointed at the shareholders' meeting next month.

Even if the sanction is confirmed, there is no problem in carrying out the term if it is after the shareholders' meeting, that is, after being appointed as the next chairman. Regarding this, the financial authorities plan to complete the resolution procedure for the enforcement of the sanction as early as the beginning of next month. Considering the set schedule, it is interpreted as proceeding without any gap in the process.

Therefore, the general view is that if Chairman Sohn intends to serve as the next chairman, he will likely have to resolve the sanction issue first through legal battles. There is also an analysis that he has a chance of winning in theory. There is room to dispute whether it is appropriate to directly apply the current Corporate Governance Act, which stipulates the obligation to establish internal control standards, to the CEO.

The problem lies in the burden of engaging in an all-out confrontation with the financial authorities. A financial sector official pointed out, "As the CEO of a financial company under supervision across the entire business, it would not be easy to engage in a legal power struggle with the financial authorities," adding, "Concerns about the repercussions of an uncomfortable relationship with the financial authorities could cause internal resistance within the organization and ultimately weaken management momentum." The fact that there has been no case of continuing management after receiving a heavy disciplinary sanction adds weight to these concerns.

If the 'direct confrontation' card is ruled out, it is possible to assume a situation where Sohn resigns or leaves after completing the current term. In any case, the group faces the task of electing a new next chairman. This could disrupt management plans to strengthen the non-bank sector through strategic mergers and acquisitions (M&A) to respond to the increasingly deteriorating environment.

The next Woori Bank president candidate selection process by the group nomination committee, which continued until the end of last month, may also fall into uncertainty. Sohn chairs the group nomination committee. Unless he steps down immediately, there is no problem in proceeding with the remaining procedures as chairman, but the fact that he would exert influence over the appointment of the new head of Woori Bank, a core of the group, while under a heavy disciplinary decision could spark controversy.

Regarding Sohn’s tenure, the financial authorities drew a line by stating, "It is a matter for (Woori Financial’s) shareholders and board of directors to decide," but also expressed the view, "Considering various circumstances, we expect the company and shareholders to make the decision that best enhances corporate and shareholder value."

Meanwhile, the Woori Bank labor union issued a statement on the 31st of last month, fiercely criticizing the heavy disciplinary decision on the DLF as a "cover-up strategy obsessed only with sanctioning financial companies while ignoring the fundamental problem of the incident," and announced a 'strong struggle.'

The union condemned, "Although the FSS claims to have conducted a final review by investigating whether the risk management organization within the bank and the internal control system were properly functioning, it is only trying to evade responsibility for the inadequate management and supervision that failed to detect problems through ongoing audits and management status inspections of the bank."

This content was produced with the assistance of AI translation services.