[Inside Chodong] Next-Generation Leaders Become 'Relics,' and the Law Raising the Bar for Reappointment Risks Becoming One Too

In November 2023, the global IT industry was thrown into turmoil when the OpenAI board made the abrupt decision to dismiss CEO Sam Altman, known as the "father of ChatGPT." This move was the result of the board's—especially the outside directors'—determination to keep radical artificial intelligence (AI) development in check. Although Altman returned after just five days, ending the so-called "five-day reign," this event became a landmark case demonstrating that even a founder and iconic CEO can be ousted at any time based on the board's judgment.

The OpenAI incident has resurfaced in discussions as Korea's financial authorities are currently pushing for reforms in the governance structure of financial holding companies. Unlike in the United States, where the board truly functions as a check on power, Korea's outside director system in the financial sector is harshly criticized as little more than a formality. The structural limitations are particularly evident in financial holding companies, often referred to as "ownerless companies." The chairman controls the appointment of outside directors, and the Executive Candidate Recommendation Committee—comprised of these directors—routinely secures the chairman's reappointment, creating an exclusive inner circle.

As the board has devolved from a watchdog over the CEO into a facilitator of self-reappointment, long-term rule spanning six to nine years has become commonplace. During this period, succession programs to nurture next-generation leaders have been pushed aside. The remark by Lee Chanjin, Governor of the Financial Supervisory Service, that "if you wait six years, the next-generation leader becomes an antique too," is not just rhetoric but a poignant reflection of the painful reality in Korea's financial sector. The warning is that the tendency to prioritize safety over innovation, resting on stable interest income structures, is turning financial holding companies into sprawling "retirement complexes."

There is general agreement with the direction of the measures proposed by the authorities. The intent to enhance transparency—by making the Executive Candidate Recommendation Committee entirely composed of outside directors and strengthening the documentation and disclosure of board decisions—is justified. The problem lies in how effective this approach will be.

The centerpiece of the reform proposal is to legislate that CEO reappointments must pass a "special resolution" at the shareholders' meeting—requiring approval from at least two-thirds of those present. However, it is almost unprecedented to legally mandate the appointment requirements for CEOs of private companies. This is why criticism of "government-controlled finance" has emerged. The effectiveness is also questionable. Recently reappointed chairmen of major financial holding companies—Woori, BNK, and Shinhan—received overwhelming approval rates of around 90%. If raising the requirements does not change the outcomes, the regulation itself risks becoming obsolete and yet another "policy relic."

The momentum for reform is not what it used to be. The announcement, initially scheduled for March, has been postponed repeatedly, now into April and May. As Governor Lee Chanjin delayed the announcement of the governance reform, he indefinitely postponed the meeting with financial holding company board chairmen that had been scheduled for last week. The team leader at the Financial Supervisory Service responsible for coordinating the process has moved to a law firm, leaving the position vacant for several weeks.

The right approach to governance reform is clear: build a structure that holds management genuinely accountable. Instead of raising legal barriers to reappointment, policies should be consistently pursued to transform outside directors from mere "rubber stamps" into truly independent monitoring bodies, by making evaluation systems meaningful and strengthening disclosure.

Eight years ago, the authorities suffered a virtual "KO defeat" in their battle with financial holding company chairmen who pushed ahead with reappointments despite strong opposition. Excessive regulation that fails to win market acceptance only undermines the authority of the regulators. In trying not to turn people (leaders) into antiques, we must not turn the law itself into an antique. Rather than imposing artificial barriers, what is needed now is "slow but certain change" to fundamentally improve the structure of boards.

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