ATMs from major banks are clustered together inside a building in Seoul. [Newsis]
ATMs from major banks are clustered together inside a building in Seoul. [Newsis]

The ruling Democratic Party and financial regulators have abandoned their push to legally ban financial holding company CEOs from serving more than three consecutive terms, backing away amid concerns over constitutionality. The reversal also reflects sensitivity to foreign shareholders — who wield enormous influence over the domestic stock market — at a time when the market has remained under prolonged pressure. While none of the four major financial holding companies is immediately subject to a three-term cap, the financial sector has broadly welcomed the shift as a market-oriented approach.

The ruling party and government plan to hold a policy coordination meeting soon to discuss a revised corporate governance reform package for financial holding companies, according to reporting Wednesday. Rather than legislating a hard ban on a third consecutive term for holding company chairmen, the leading option is now to require approval through a special resolution at a general shareholders' meeting. The plan is expected to be finalized as early as early September.

The special shareholders' meeting resolution requirement represents a significant relaxation compared with an outright ban. Under a legal prohibition, a sitting CEO would be automatically disqualified from seeking another term; under the special resolution route, the same person could remain a leading candidate. In practice, holding company chairmen have generally secured reappointment without difficulty as long as their earnings performance held up.

The three-term ban had carried strong momentum in the early stages of the governance reform discussions. When President Lee Jae Myung criticized financial holding company CEOs and their boards as a "corrupt inner circle" late last year, the ruling camp rallied behind the push. Financial Supervisory Service Governor Lee Chan-jin also weighed in at a press briefing late last year, saying the problem was that "everyone has a strong desire to stay on, and that desire is operating far too excessively." At a July press briefing, he went so far as to set a specific timeline for announcing the governance reform package.

The mood shifted last month. Financial regulators held a closed-door meeting with ruling party members of the National Assembly's Political Affairs Committee ahead of a planned late-July announcement, presenting two options: one that would enshrine term limits in law, and another that would make a third term subject to a special shareholder resolution. Multiple lawmakers at the meeting expressed reservations about the term-limit option, sources said. One lawmaker said some members had called the first option insufficient, while others raised constitutional concerns.

A Political Affairs Committee official said the financial industry carries a degree of public character given the government's role in protecting it, but added that "telling someone to simply step down is a different matter entirely."

Financial regulators indefinitely postponed the announcement of the governance reform package after the closed-door meeting with the ruling party. A separate meeting with the chairmen of eight financial holding companies, also scheduled for late July, was likewise canceled.

Analysts say the shift also reflects a deliberate effort to avoid antagonizing foreign shareholders amid the ongoing market correction. Legislating a three-term ban could send a negative signal to markets at a time when foreign investors hold outsized sway over domestic equities. South Korea's bid to join the MSCI Developed Market index — a top priority for financial regulators — is also seen as a factor. A ruling camp official said, "With share prices falling since July, I'm not sure there was any need to push this through — there was likely a political calculation involved as well."

Foreign shareholders' influence is substantial: foreign ownership stakes in the four major financial holding companies — KB Financial Group, Shinhan, Hana and Woori Financial Group — reach as high as 79.25 percent.

ISS, the world's largest proxy advisory firm, had also come out against rigid term limits, saying that "what is observed in global markets is not a uniform, hardware-style tenure restriction, but a natural leadership cycle shaped by governance practices, market discipline and regulatory oversight." ISS added that CEO tenures in the financial services industry "tend to cluster within a relatively consistent range of five to seven years — a balance between strategic continuity and the periodic need for leadership renewal."

Financial Services Commission Vice Chairman Kwon Dae-young told the National Assembly's Political Affairs Committee on July 29 that he was giving the ISS position "significant weight," responding to a question from People Power Party lawmaker Park Sung-hoon, who had asked whether regulators had sufficiently reviewed ISS's view that strengthening board independence and shareholder oversight was preferable to capping CEO terms.

The financial sector has welcomed the ruling party and government's retreat from legislating a three-term ban. Concerns about government overreach — or "gwanchi," meaning heavy-handed state intervention — have been mounting since the current administration made productive and inclusive finance a central policy theme and recently tightened aggregate caps on household lending. Many in the industry had feared that stricter reappointment requirements would only deepen that interference. One industry official said the original proposal "not only ran counter to the global standard of allowing shareholders to decide whether to renew a proven CEO's mandate, but risked restricting shareholders' right to choose," adding that it was "a relief the outcome did not go in the direction we feared."

The chairmen of Shinhan, Hana and Woori Financial Group have already secured reappointment, so the governance reform package would not apply to them immediately. KB Financial Group, which is currently selecting its next chairman, was also not subject to the three-term cap under the original proposal. Still, because regulators' moves had emerged as a variable in that selection process, the ruling party and government's change of course is seen as reducing uncertainty around the reappointment picture.

The governance debate has nonetheless prompted calls for the financial sector to reflect on its own practices. Critics have long pointed out that financial holding company CEOs tend to appoint allies as outside directors, giving them outsized influence within their organizations. Against that backdrop, financial regulators are reviewing a clawback mechanism to recoup executive bonuses in cases of financial misconduct, a "say on pay" system to give shareholders a voice on individual executive compensation, and a staggered outside director term structure. Expanding the influence of the National Pension Service — a major shareholder in each of the major financial holding companies — is also under discussion.


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