Improvement of corporate governance became one of the most impor- tant policy goals after the crisis. The Korean government had clearly recognized that the lack of an efficient corporate governance system was one of the major causes of the financial crisis in Korea. In particular, failure in the corporate governance of banks was identified as major cause of deep-rooted structural problems in bank management. After the crisis, the Korean government took a number of steps to improve the corporate governance of banks.
In this paper, we reviewed the various reform measures taken to improve the corporate governance of banks. After explaining the reform measures, we evaluated and analyzed the performance and effectiveness of the new corporate governance system in banks, seeking to determine if the new system is performing as well as expected and producing positive tangible outcomes in bank management.
Considering the well-established corporate governance system and the overall positive findings of the survey, it is clear that the board of directors has become much more effective since the pre-crisis period. Currently, about 70 percent of board members are outside directors, far exceeding the minimum required level of 50 percent, and they have various professional backgrounds in finance. They are actively partici- pating in bank management, not only monitoring overall management, but also protecting shareholder value by preventing outside pressures from negatively influencing bank management. Also, various subcommi- ttees were established on the board to facilitate the decision-making process, and outside directors are actively participating in discussions on important issues on bank management and business in the board meetings. Many positive changes are occurring in the internal manage- ment of banks. The top management of banks clearly recognizes the importance of corporate governance.
However, the boards of directors are still not very effective in many other respects. First of all, the outside directors should be granted greater independence from the CEOs and dominant shareholders. As indicated in the survey, many outside directors still believe that they are not independent from the CEOs or dominant shareholders and that the boards are dominated by the CEOs. Considering that the major reason for the lack of independence is the excessive influence of CEOs in the selection and termination of directors, the board of directors should clearly be granted the authority to handle the selections and terminations independently.
Second, the incentive structure should be improved to fully encourage the outside directors to actively participate in the decision-making process of the banks and for the best interests of the banks. As pointed out in the survey, most outsider directors believe that properly designedperformance incentives are very important, but that there is little relation between their current compensation and bank performance. Therefore, the compensation of the outside directors should be improved considering that most of them are high-earning professionals whose opportunity costs as outside directors are quite high. In addition, the decisions on their compensation and reappointment should be based on evaluation of their performances on the board of directors.
Finally, the education and training programs for the outside directors should be strengthened. As shown in the survey, only 12 percent of the banks have substantial mandatory education or training programs for the outside directors. Considering that it is quite difficult and costly for each bank to train a small number of their own directors, the Financial Supervisory Service or Federation of the Banks should develop the needed training programs and collectively offer the training to all directors.
은행지배구조의 평가와 과제(Evaluation on the corporate governance of banks in Korea)
서울 : 한국금융연구원
|Series Title; No||금융조사보고서 / 2005-12|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||한국금융연구원; KDI 국제정책대학원|