[In a Tight Spot under Lim Jong-ryong's Leadership]③ Woori Financial Labor and Management 'Collusion'... Oligopoly Shareholders 'Escape'

Union Remains 'Quiet' Amid Various Financial Scandals... Union Leadership Thrives
Board Fails to Receive Report on Sohn Tae-seung's Improper Loans... Weak Oversight Function

Editor's NoteWoori Financial Group has once again become the center of controversy due to improper loans involving relatives of former Chairman Sohn Tae-seung. Why do various unprecedented financial scandals such as embezzlement, misappropriation, and breach of trust amounting to hundreds of billions of won occur more frequently here than at other banks? While in other banks, individual misconduct outside the system is a major issue, Asia Economy judges that the core cause at Woori Financial is a long-accumulated organizational culture. This series begins with a focus on Woori Financial's flawed organizational culture, hoping that exposing these issues through articles will lead to a thorough reform. Asia Economy plans to continuously cover the organizational culture problems of Woori Financial in future articles.

Despite major financial scandals that affect the company's credibility occurring every year at Woori Financial Group and Woori Bank, there is no active internal movement to monitor and check these issues. The shareholder alliance, once known for its ideal governance structure, did not even receive official reports during the improper loan incident involving former Chairman Sohn Tae-seung, and the labor union has also remained largely silent.

In the financial sector, the lack of internal monitoring and checks is attributed to side effects stemming from the deeply rooted parachute and connection culture due to past public fund injections, which led to a kind of collusive relationship between management and the labor union. Additionally, since the major shareholders have differing interests, they focus more on exit strategies (profit realization) rather than active management intervention.

Powerful Labor Union Thrives... But Checks Are Weak

There are criticisms within the financial sector that the labor union's monitoring and checking of management is somewhat weak. Even regarding major issues affecting the company's credibility, such as the 18 billion won embezzlement case by a deputy-level employee at the Gimhae branch that recently shook Woori Bank, and the improper loan incident involving former Chairman Sohn's relatives, the union has not raised significant voices.

In particular, in 2020, when the Financial Supervisory Service (FSS) imposed a heavy disciplinary action on former Chairman Sohn for his responsibility in the overseas interest rate-linked derivative-linked securities (DLF) scandal, the union instead defended the management, stating that “there is no legal basis for internal control-related punishment, and holding the CEO responsible is an abuse of authority.” A Woori Bank official said, “It could be seen as a judgment that an external 'parachute' might come later, but at that time, the union chairman was known to be friendly with former Chairman Sohn and held a favorable stance toward management.”

Some suggest that the union has been excessively close to management rather than acting as a watchdog. For example, except for the current 9th chairman (Chairman Park Bong-su), the career paths of the four union chairmen since 2011 show a consistent pattern of promotion to executive positions after holding key posts.

The 5th chairman, who served from 2011 to 2013, was appointed as the head of Daechi North Branch (now closed) in 2014 after retirement, moved to Gangnam-daero Center in 2016, and since 2021 has been serving as a director at Woori Financial Savings Bank, a Woori Financial subsidiary. The 6th chairman also moved to Woori Financial Savings Bank in 2021 after serving as head of Shinbanpo Financial Center in the Gangnam area. The 7th and 8th chairmen were appointed as heads of the Legal Town Financial Center in 2023 after their terms ended.

According to the banking sector, branches and centers in the Gangnam area, excluding those within Seoul's Four Great Gates, are considered the most popular positions among bank clerks. The Legal Town is also highly regarded as it manages large court deposits and attracts core deposits (low-cost deposits), contributing significantly to bank management.

An anonymous Woori Bank official said, “After finishing their terms as union leaders, most are assigned to positions such as center heads or department heads, which are effectively guaranteed promotions, and in the long run, they even become executives. How many ordinary clerks can have direct access to the bank president?” He added, “Ironically, even those who lose union chairman elections and are not on good terms with the union leadership are promoted to reduce threats.”

The 'powerful union' is well known even outside the bank. A bank union official said, “When attending meetings of the Financial Industry Labor Union, the atmosphere of the former Woori Bank union is different from other unions. The union chairman acts almost like the bank president, and the union executive team receives protocol accordingly.” He added, “Companies under the old Woori Financial Group also have similar atmospheres where management and unions are close. This culture likely arose due to strong external pressures while receiving public funds.”

Major Shareholders Choose ‘Exit’ Over ‘Checks’

From the perspective that the board of directors is the first line of management oversight, the role of major shareholders composing Woori Financial's board is important, but they have also shown little movement. Rumors about improper loans have been widespread for years, not only within the bank but also at the holding company, and some information reportedly reached the board, but no significant action was taken.

The first audit results by the Financial Supervisory Service regarding former Chairman Sohn's improper loan case also show no role played by the board or major shareholders. According to the FSS, the board representing these major shareholders did not receive any specific reports related to the improper loan incident involving former Chairman Sohn's relatives until April, when internal audits and disciplinary actions were completed. When the FSS began an investigation based on separate reports, the board only briefly conveyed the matter around May to June.

The financial supervisory authorities are also focusing on this issue. The FSS unusually issued additional materials stating, “Since last year, we have continuously emphasized the importance of board functions through regular meetings with outside directors and announcements of governance best practices,” and criticized, “Woori Financial's behavior seriously undermines the governance improvement efforts jointly promoted by the FSS and the banking sector.”

The major shareholder system, initially proposed as part of Woori Financial's privatization plan, was regarded as an ideal solution to governance issues. Lim Jong-ryong, chairman of Woori Financial Group who led the formation of the major shareholder system, stated during his tenure as Financial Services Commission chairman that “various types of major shareholders will pursue rational management through collective intelligence and experience with the common goal of enhancing corporate value.”

However, the reality has been different. While major shareholders recommended outside directors and intervened in management, Woori Financial failed to achieve significant results. It fell to fourth place among the four major financial holding companies and did not exert influence over incidents such as the DLF scandal, hiring irregularities, the 70 billion won embezzlement case in the Corporate Improvement Department, the 18 billion won embezzlement case at the Gimhae branch, and the improper loan incident involving former Chairman Sohn's relatives.

Instead, some major shareholders appear to be choosing to exit. The current list of major shareholders includes Kiwoom Securities (3.73%), Korea Investment & Securities (3.77%), Eugene Private Equity (4.0%), Taiwan Fubon Life (3.97%), and IMM Investment (1.4%). Compared to 2016, Dongyang Life, Mirae Asset Global Investments, and Hanwha Life have exited through share sales, and IMM PE has reduced its stake from 6.0% to 1.4% over eight years, diminishing its influence. Eugene PE and Fubon Life have newly appeared on the major shareholder list as white knights for Woori Financial's full privatization.

In the financial sector, some point out the limitation arising from major shareholders holding equal 4% stakes despite having different interests across various industries. Moreover, these shareholders are also unable to escape the government's sphere within the financial market. For example, Shinhan Financial Group, which also has a major shareholder system, includes the National Pension Service (8.26%) and BlackRock (5.71%), but in reality, a group of Korean-Japanese shareholders called the Kanchinkai (懇親會) holds an estimated 15-17% stake and effectively leads the major shareholder system.

Former Hana Financial Research Institute director Bae Hyun-ki said, “Because the interests of major shareholders differ, financial investors believe they have realized sufficient profits and are exiting, and strategic investors have no clear reason to maintain the shareholder alliance, so they are stepping aside. Initially, it was expected that major shareholders would actively participate in management and effectively control the CEO and employees internally, but in reality, such a system has not functioned properly.”

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