The Financial Services Commission announced a set of corporate governance reform measures to seek improvements to the corporate governance structure of financial companies at the meeting with the ruling Democratic Party held on November 12. The corporate governance reform measures are intended to help resolve some of the thorny issues regarding the governance structure of financial companies, which will help to boost public confidence in financial companies and strengthen the industry’s competitiveness.
Background
Since the announcement of the annual work report presented before the President on December 19, 2025, the FSC has actively sought measures to bring about solutions to some of the thorny issues in the corporate governance of financial companies, such as the reappointment of an incumbent CEO by the CEO him/herself and the problem of CEO entrenchment. To make the governance structure of financial companies more fair and transparent, the FSC has been operating a taskforce made up of officials from the Financial Supervisory Service (FSS), research institutions, academia, and the legal profession since January 2026 and had a series of taskforce meetings and discussions to seek improvements.
Alongside this, the FSS performed inspections on eight major bank holding companies in January 2026 to closely examine their corporate governance structures. In the process, it was uncovered that there needs to be improvement particularly in the areas of the fairness and independence of the CEO succession process, the transparency in the independent (outside) director appointment process, the role of boards of directors in keeping CEOs in check, and the operation of bonus compensations.
Based on the outcome of FSS inspections and taskforce discussions, the FSC has identified and examined key problems in the corporate governance structure of financial companies and has come up with a set of improvement measures to strengthen accountability and transparency, which has been presented and confirmed at the meeting with the ruling Democratic Party today.
Key Measures
The corporate governance reform measures being adopted for financial companies are aimed at seeking improvements in four key areas, while taking into account the objective of the updated Commercial Act, the level of regulatory consistency with overseas practices, and practical adoption and implementation by financial companies.
a) The autonomy and accountability of financial companies’ executive search committees and boards of directors will be strengthened to effectively prevent the occurrence of CEO entrenchment.
To make sure that CEOs of financial companies are effectively barred from having an unfair and inappropriate influence in the management succession process, the autonomy and accountability of executive search committees will be significantly strengthened. In this regard, financial companies’ CEO search committees will be made up exclusively with independent directors only, and incumbent CEOs will be barred from attending committee meetings for recommending independent directors or audit committee members. Moreover, there will be new rules and sanctions established to effectively bar incumbent CEOs from inappropriately influencing the management succession process, while requiring financial companies to disclose relevant information if there has been any contact between an incumbent CEO and the company’s executive search committee during the management succession process. Alongside this, in order to strengthen the responsibility of executive search committees, all committee members should attach a confirmation letter for recommending a candidate to indicate specific reasons for recommendation when financial companies make an announcement to hold a general shareholders’ meeting. In this regard, the chair of the executive search committee will need to directly explain to shareholders specific reasons for recommending a particular candidate. The chair of the executive search committee will also be made subject to a responsibilities map for his or her duties regarding the operation of the executive search committee.
All financial companies will adopt an independent director system and their boards of directors will be made more independent and accountable. Listed financial companies will adopt an independent director appointment process through which candidates for independent directors can be recommended by shareholders that have above a certain level of equity ownership. In addition, financial companies will be required to hold meetings exclusively for independent directors at least twice a year, while the assessment indicators to evaluate the performance of independent directors for effectively keeping the corporate management in check will be revamped and the disclosure requirement on their activities strengthened. Moreover, financial companies will be required to accurately and faithfully write up and maintain minutes for board of director meetings to bolster fairness and transparency. There will also be improvement steps taken to boost the expertise, diversity, and responsibility of boards of directors, so that they can provide an effective check and balance to the management.
b) An effective control mechanism will be put in place to seek improvements to the practice of long-term and consecutive reappointments of a bank holding company CEO through CEO entrenchment.
For the CEO succession process of bank holding companies, which often have no controlling shareholder due to their dispersed ownership structures, there will be more control mechanisms in the process for shareholders and executive search committees. The appointment of a CEO for bank holding company CEOs will need to take place through a general shareholders’ meeting, and the executive search committee and voting requirements will be tightened in stages for appointing and re-appointing a CEO. Currently, recommending a candidate for CEO takes place with a simple majority vote from the present committee members. However, this voting rule will be strengthened to require a minimum two-thirds majority vote from all committee members for recommending a candidate for CEO. For the reappointment of an incumbent CEO, a three-fourths majority vote from all committee members will be required for recommending a candidate. Under the current rules, CEOs as inside directors are appointed with a simple majority vote from the present voting rights (minimum 1/4 of total volume of shares issued) at general shareholders’ meetings. However, this voting rule will be strengthened for reappointing an incumbent CEO. For a second-term consecutive reappointment, a two-thirds majority vote (minimum 1/3 of total volume of shares issued) will be required, and for a third-term consecutive reappointment and thereafter, a three-fourths majority vote (minimum 1/2 of total volume of shares issued) will be required to ensure that shareholders can exert an effective control over the CEO selection process.
There will also be strengthened management over the CEO succession process to ensure more fairness and transparency, which will help pension funds and other institutional investors better perform their role of evaluating the CEOs of financial companies. In this regard, the CEO evaluation criteria will be made more specific to include non-financial and social impact criteria. The CEO evaluation criteria cannot be arbitrarily altered while a succession process is taking place, and the disclosure of evaluation results will also be strengthened. In addition, the succession process will take place early (at least three months before selecting a final candidate or six months before the end of incumbent’s term) to ensure a sufficient time for verification. Along this line, the CEO succession pool will be managed more systematically and outside candidates will also be given an adequate timeframe for preparation to create conditions for fair competition.
Financial companies are also encouraged to shun some of the unreasonable and customary practices in the CEO reappointment and resigning process to foster a more responsible management culture across the industry. With regard to the practice of hiring a former CEO or executive member to the position of an advisor, financial companies will need to come up with a reasonable standard on the level of compensation and disclose this information. Additionally, financial companies are discouraged from spending an excessive amount of money on advertisement to seek reappointment of an incumbent CEO. Their advertisement spending in this regard will be subject to public disclosure.
c) The role of institutional investors including pension funds will be strengthened as responsible shareholders.
Through the provision of clear authoritative interpretations, the independent director recommendation system will be promoted to facilitate institutional investors to make active use of this process, so that a more shareholder-driven and market-oriented corporate oversight and evaluation system can be put into practice.
Moreover, institutional investors will be guided in accordance with the stewardship code to more actively scrutinize the independence and responsibility of boards of directors (including independent directors) of financial companies.
d) Executive bonus compensations will be made more reasonable and transparent.
There will be an enhanced provision of information made available to shareholders to enable them to see whether individual executive officers’ pay levels are appropriate and commensurate with his or her role, responsibility, and duty. Under the current system, decisions regarding individual executive officers’ compensation levels are being determined by boards of directors, although the total amount of compensations for all executive officers is being approved at general shareholders’ meetings. However, listed companies with a total asset size of KRW2 trillion or more will need to disclose compensation package for each executive officer at a general shareholders’ meeting to facilitate say-on-pay (SOP). Additionally, listed companies will need to disclose the total amount of executive pay (including bonus) for each executive officer or employee if his or her annual pay level is above KRW500 million (total compensation for an executive) or KRW300 million (total bonus compensation for an executive or employee).
In addition, there will be measures to prevent executive officers from pursuing excessive risk-taking and to make them more accountable for their work performance. Under the current system, financial companies pay out a certain portion (minimum 40 percent) of incentive pay after a certain period (minimum three years). This deferred bonus payment system will be tightened to require financial companies to withhold a larger portion of bonus amount (minimum 50 percent) for a longer period of time (minimum five years). Moreover, a clawback rule will be introduced to require executive officers to return previously paid bonus compensations if s/he is found to have knowingly or with gross negligence inflicted a loss to company, or if there has been a correction made to the company’s financial statements, which have been used to calculate his or her bonus compensations.
Further Plan
The FSC and the ruling Democratic Party agreed to swiftly carry out the steps necessary for the legislation process. Based on the measures announced at today’s meeting, the FSC plans to introduce a revision proposal for the Act on Corporate Governance of Financial Companies by the end of this year. The FSC also plans to update the stewardship code and seek regulatory reform in other areas through a continuous operation of the taskforce.
The FSC will make sure to continue to closely communicate with the financial industry to ensure a seamless adoption of new rules and foster an effective shareholder-driven and market-oriented corporate oversight and evaluation system.
* Please refer to the attached PDF for details.