ISS said to have recommendation on agenda up for vote at KB Financial’s AGM

KB Financial Group building [Courtesy of KB Financial Group]

Institutional Shareholder Services Inc. (ISS), one of the world’s two largest voting rights advisory firms along with Glass, Lewis & Co., has begun to give its recommendations on major agendas that will be voted on at annual shareholder meetings of major financial holding companies in South Korea.

It is known that more than 70 percent of global investors pay to refer to ISS opinions. Accordingly, attention is now focused on how ISS’ recommendations will influence foreign shareholders and others in vote showdowns at the upcoming meetings later this month.

ISS is recommending investors oppose the appointment of an outside director candidate at KB Financial Group proposed the holding company’s labor union and the reappointment of eight outside directors at Shinhan Financial Group, according to sources in the financial industry. But it recommends approving the appointment of Shinhan Financial’s chairman nominee Jin Ok-dong.

According to the financial industry on Thursday, ISS recommended in a recent report regarding KB Financial Group that shareholders vote against director nominee Lim Kyung-jong in the upcoming March 24 general meeting. Earlier, on Feb. 30, KB Financial Group’s labor union submitted a proposal and a power of attorney to the KB Financial Group‘s board of directors, recommending Lim, former chief executive officer of PT Koexim Mandiri Finance in Indonesia, as an outside director candidate.

“Lim has a high understanding of the banking industry and can carry out his duties fairly based on practical experience and expertise,” said the union. “Considering the need to properly manage the risks of KB Bukopin Bank, an Indonesian bank controlled by KB Kookmin Bank, and develop its local sales skills to normalize the overseas business sector, he is the best candidate.”

The ISS, however, said in its report that like other outside director candidates, whether or not to appoint a union-recommended outside director should be determined by what contribution the candidate can make for the benefit of shareholders, adding that it’s recommending shareholders oppose the proposal because the union’s argument isn’t persuasive.

Shinhan Financial’s chairman nominee Jin Ok-dong [Photos provided by Shinhan Financial Group]

KB Financial Group union presented candidates for outside directors five times from 2017 to 2022 in the form of a union recommendation or an employee stock ownership association recommendation, but none of them were approved.

ISS also expressed its opposition to a partial amendment of the Articles of Association proposed by the union in the form of a shareholder proposal. The union argues that in order to limit government’s influence and executive appointments, those who have been employed in the government for more than a year within the past five years must be banned from being appointed as CEO for three years.

In response, ISS noted in its report that the union failed to provide convincing evidence of their concerns, including the government’s influence, and recommend shareholders oppose the agenda.

Furthermore, ISS also made clear its positions on Shinhan Financial Group’s shareholders‘ meeting scheduled for March 23. First, ISS was in favor of appointing Jin Ok-dong, CEO of the financial group’s flagship banking unit Shinhan Bank.

ISS said Jin played a key role in improving Shinhan Financial’s risk management and prepared measures to prevent a recurrence of private equity fund crises, such as the Lime Asset Management, by coming up with a customer compensation system, strengthening internal risk systems and reorganizing Key Performance Indicators for employees related to sales of high-risk products. It recommended voting in favor of Jin’s appointment because opposing the chairman candidate in an uncertain business environment could damage the values of the company and shareholders.

ISS, however, objected to retaining the current eight outside directors as they failed in governance and risk management. This can be interpreted to mean that they failed to play a proper role in checking and monitoring the Lime Fund crisis and hiring irregularities.