Will the Financial Sector's Union-Nominated Director System Fail Again This Year? KB Financial's Major Investors Continue to Oppose (Comprehensive)

KB Financial Employee Stock Ownership Association-Recommended Outside Director System Faces Opposition from ISS and Overseas Investors
Financial Sector Union-Recommended Outside Director System Expected to Fail Again This Year

[Image source=Yonhap News]

[Asia Economy Reporter Park Sun-mi] Following ISS, the world's largest proxy advisory firm, Korea Corporate Governance Service (KCGS), the largest domestic proxy advisory firm, also expressed opposition to the outside director candidates recommended by the KB Financial Group employee stock ownership association. Foreign investors who opposed the outside directors recommended by the labor union over the past three years have once again opposed this year. Due to the consecutive opposition recommendations from institutions that significantly influence foreign investors' voting intentions, the outside director proposals recommended by the employee stock ownership association are widely expected to be rejected.

Proxy Advisory Firms Consecutively Recommend "Opposition" to Outside Director Appointments Recommended by Employee Stock Ownership Association

According to the financial investment industry on the 10th, Korea Corporate Governance Service (KCGS), the largest domestic proxy advisory firm, urged shareholders to vote against Agenda Item 3 (Appointment of Outside Director Yoon Soon-jin) and Agenda Item 4 (Appointment of Outside Director Ryu Young-jae) at the KB Financial Group's extraordinary general meeting scheduled for the 20th, as stated in a report distributed the previous day. Professor Yoon Soon-jin of Seoul National University Graduate School of Environmental Studies and Ryu Young-jae, CEO of Sustainvest, were recommended by the KB Financial Group employee stock ownership association as outside director candidates to strengthen KB's Environmental, Social, and Governance (ESG) management.

KCGS explained the background of its opposition by stating that KB Financial is already a leading ESG company in Korea with excellent governance and social responsibility, making it unlikely that appointing outside directors recommended by the employee stock ownership association would enhance shareholder value. Earlier, ISS, the world's largest proxy advisory firm, also advised that appointing outside directors without following proper procedures is undesirable and expressed 'opposition' to the two outside director candidates recommended by the employee stock ownership association. Glass Lewis, the world's second-largest proxy advisory firm, has also officially sided with the KB Financial board by expressing 'opposition.'

As proxy advisory firms that analyze corporate shareholder meeting agendas and provide voting guidelines continue to oppose the outside director candidates recommended by KB Financial's employee stock ownership association, it is expected that the association will find it difficult to secure sufficient votes in favor of their recommended outside directors at the extraordinary general meeting on the 20th.

This is because foreign ownership of KB Financial's shares exceeds 65%, giving proxy advisory firms significant influence. ISS also opposed the labor union-recommended outside directors at KB Financial in 2017 and 2018, and both times, the candidates were rejected. Moreover, KCGS, which expressed opposition this time, influences many domestic institutional investors, including the National Pension Service, KB Financial's largest shareholder.

KB Financial Board Also Opposes Outside Director Candidates Recommended by Employee Stock Ownership Association

On the 29th of last month, KB Financial's board announced through a public disclosure that "the board reviewed whether the shareholder proposal recommending outside director candidates by the employee stock ownership association leader and some shareholders aligns with the interests of the company and all shareholders." It added, "Our outside director candidate recommendations are conducted systematically and rigorously through stages of candidate pool formation, evaluation, shortlisting, reputation checks, and final selection. Regardless of the legal qualification requirements for shareholder-proposed candidates, it is deemed undesirable to appoint candidates who have not undergone KB's exemplary outside director candidate management and recommendation procedures, and thus the board opposes the proposal."

Although the employee stock ownership association leader claims to urgently recommend experts as directors to strengthen ESG, KB Financial's board explained that the company had already established the industry's first ESG committee in March this year and has continuously pursued ESG-related improvements such as carbon emission reduction, the announcement of KB Greenway 2020, and the financial group's first coal divestment declaration.

The board added, "Since the current board size and structure have been formed over several years with shareholder approval at general meetings, if shareholder-proposed candidates are additionally appointed at the extraordinary general meeting without unavoidable reasons such as the retirement of existing directors, changes to the board and committee composition will be inevitable, causing confusion in board operations."

KB Financial Employee Stock Ownership Association Expands Shareholding from 1.34% to 1.73%

KB Financial's employee stock ownership association is working to secure legitimacy for recommending outside directors by expanding its shareholding in KB Financial.

The association stated the previous day, "From the 16th of last month to the 6th of this month, the association completed intraday purchases using 67.6 billion KRW of funds it independently raised, increasing its shareholding from 1.34% to 1.73%. It has risen to become the fifth-largest shareholder after the National Pension Service (9.97%) and JP Morgan Chase (6.40%), and excluding KB Financial Group's treasury shares (5.06%), it is effectively the fourth-largest shareholder."

Chairman Ryu Je-gang said, "Considering that major shareholders such as the National Pension Service, a pension trustee institution, and JP Morgan, which holds Depositary Receipts (DR) as a trustee, are financial and economic investors, the employee stock ownership association is the largest practical shareholder capable of directly expressing opinions. Therefore, granting the employee stock ownership association the authority to recommend outside directors is more desirable."

Since the chairman of the employee stock ownership association concurrently serves as the labor union leader and the association's shareholding is increasing, there are concerns that labor-management conflicts at KB Financial may intensify depending on the voting battle at the extraordinary general meeting on the 20th. The KB Financial labor union had strongly opposed Chairman Yoon Jong-kyu's third term earlier, and the repeated failure of outside director recommendations could ignite further labor-management disputes.

Furthermore, if the employee stock ownership association's recommended director system at KB Financial fails, the introduction of the labor director system, which was a campaign pledge of President Moon Jae-in to appoint workers directly to the board to participate in corporate decision-making, and the related labor union recommended director system in the financial sector within this year will inevitably face difficulties.

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