Shinhan Financial Group to Reduce Proportion of Japanese-Korean Outside Directors?

Five Japan-related figures including 4 Korean residents abroad
Two additional foreigners this year, possibility of maintaining current level

[Asia Economy Reporter Kwangho Lee] Public attention is focusing on the next outside director candidates of Shinhan Financial Group. Since the financial authorities raised concerns about the high proportion of outside directors of Korean-Japanese descent, the key issue is how to find common ground. Some are paying attention to the fact that the number of outside directors increased by two seats due to last year's large-scale paid-in capital increase, naturally reducing the proportion of Korean-Japanese outside directors. There is also an analysis that there is no need to deliberately reduce the number of Korean-Japanese outside directors.

According to the financial sector on the 16th, Shinhan Financial plans to announce the convening of the shareholders' meeting in early March.

Currently, Shinhan Financial has a total of 10 outside directors. Among them, the terms of nine members end in March. Park Cheol, the chairman of the board who has led the board since 2015, and Hirakawa Yuki, an outside director representing Korean-Japanese shareholders, will retire this time after completing the six-year term stipulated by the internal governance regulations.

For seven outside directors including Park Ansun, Byun Yangho, Sung Jaeho, Yoon Jaewon, Jin Hyundeok, Choi Kyungrok, and Heo Yonghak, their intention for reappointment will be asked, and reappointment procedures will be carried out.

Typically, outside directors can be reappointed for up to six years after being newly appointed. However, due to concerns raised by financial authorities regarding financial company governance, there is a possibility of a large-scale replacement of outside directors.

Shinhan Financial is reportedly reviewing how to reflect the financial authorities' management advisory point from last year, which pointed out the high proportion of Korean-Japanese outside directors and the lack of diversity.

Among the 10 outside directors of Shinhan Financial, four?Park Ansun, Jin Hyundeok, Choi Kyungrok, and Hirakawa Yuki?are of Korean-Japanese descent. Including Philip Avril, a director at BNP Paribas (BNPP) Securities active in Japan, there are five individuals under the influence of the broader Japan region.

So far, Shinhan Financial has reflected the intentions of Korean-Japanese shareholders most significantly when making important decisions. Their capital formed the foundation for the establishment of Shinhan Bank in 1982, and they currently hold about 15% of the shares. Shinhan Financial Chairman Cho Yong-byeong also used to visit Japan once every quarter before the COVID-19 outbreak to communicate directly with Korean-Japanese shareholders.

Within the industry, the prevailing opinion is that Shinhan Financial will maintain the current level of Korean-Japanese outside directors.

Starting this year, two outside directors recommended by Affinity Equity Partners, a Hong Kong-based private equity firm, and Baring Private Equity Asia, the largest private equity fund in Asia, will be added to the board, increasing the number of outside directors to 12. In other words, unless these two foreign private equity firms nominate Korean-Japanese outside directors, the proportion of Korean-Japanese outside directors will naturally decrease.

A financial sector official said, "It is uncertain whether Shinhan Financial will follow past practices, but due to the financial authorities' demand to improve the suitability of outside directors, the influence of Korean-Japanese shareholders will inevitably be reduced. The direction of Shinhan Financial's governance will depend on who fills the total of four seats, including the two newly created ones."

A Shinhan Financial official drew a line, saying, "There is still time until the shareholders' meeting, and we cannot predict future changes."

Meanwhile, Shinhan Financial is expected to amend its articles of incorporation at this shareholders' meeting to promote quarterly dividends. Last month, the financial authorities requested the financial sector to refrain from '20% dividends,' and financial holding companies reduced their dividend payout ratios to a maximum of 20%. Shinhan Financial has not decided on the dividend payout ratio yet and plans to decide at the March board meeting, but it is unlikely to deviate significantly from the financial authorities' recommended level. Accordingly, interim dividends are under consideration. Quarterly dividends can prevent investor outflows by allowing investors to receive dividends every quarter. Since low dividend payout ratios may increase dissatisfaction among foreign investors, this is mentioned as a measure to alleviate such concerns.

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