South Korea's financial sector has completed a reshuffle of outside directors during the annual shareholders' meeting season. In this round of meetings, the four major financial holding groups and banks formed boards around expertise in law, financial consumer protection and artificial intelligence (AI). As financial regulators' calls to improve governance align with a push to strengthen internal controls, assessments say there is a clearer trend toward reinforcing board capabilities beyond simple personnel changes. Still, many view the changes as only partial, as the long-flagged structural bias toward academia has not been resolved.

Clear push to strengthen expertise... bolstering law, consumer protection and AI

Changes are clear in terms of expertise. KB Financial Group strengthened legal expertise by appointing lawyer Jeong-ho Seo (서정호), while Hana Financial Group and KB Kookmin Bank placed consumer protection experts at the forefront. Shinhan Financial Group's new outside director Jong-bok Park (박종복) is also seen as an attempt to move away from a structure focused on finance and management and expand specialised areas globally. Woori Financial Group strengthened digital and technology capabilities by bringing in new outside director Jeong-hye Ryu (류정혜), an AI expert.

By financial company, the direction of the appointments is relatively clear. They appear to be converging on three pillars: law, consumer protection, and digital and AI.

KB Financial placed emphasis on strengthening legal expertise. Lawyer Seo, appointed as a new outside director, is seen as well suited to bolster regulatory response capabilities based on his experience at the National Tax Service, the Ministry of Finance and Economy, and the Financial Services Commission. KB Kookmin Bank also chose to strengthen consumer-focused management by bringing in consumer protection expert Tae-hoon Yeon (연태훈), a research fellow.

Shinhan Financial bolstered both a finance expert with CEO experience and an accounting expert. Outside director Park is expected to strengthen retail and private banking competitiveness based on field experience, while outside director Seung-yeon Lim (임승연) is expected to take charge of strengthening internal controls and audit functions. Shinhan Bank also balanced board functions by bringing in both a legal expert and an ICT expert with a physics background. In particular, it is seen as an attempt to expand board expertise in digital and ICT strategy formulation and analysis of new businesses through outside director Eun-mi Chae (채은미), a quantum mechanics expert.

Hana Financial and Woori Financial placed weight on consumer protection and AI. Hana Financial reshuffled its board composition around consumer studies experts, while Woori Financial moved to respond to digital transformation by bringing in both a financial consumer protection expert and an AI expert. Woori Financial also underscored its willingness to improve governance by pursuing, in parallel, an amendment to its articles of association to expand the procedure for appointing a representative director to the shareholders' meeting.

Trend of expanding women slows... gaps widen among holding companies

Expanding female outside directors was the most mixed point in this reshuffle. Across the financial sector, it appeared the upward trend would continue, but based on these appointments it instead slightly retreated.

The gap among holding companies is particularly clear. Shinhan Financial and Hana Financial maintained or expanded systems in which 4 of 9 outside directors are women. Hana Financial was the only case that raised the female ratio by adding 1 more female outside director in this round of appointments.

By contrast, KB Financial saw female outside directors fall to 2 from 3 after 1 woman director stepped down and a man was newly appointed. It retains the symbolism of keeping a female board chair, but in terms of composition ratio it has retreated. Woori Financial also saw female outside directors fall to 1 from 2, the lowest level among the four major financial groups.

Some holding companies ultimately maintained or improved gender diversity, but overall it is difficult to say the expansion trend continued, and the interpretation is that only differences among holding companies widened.

The issue of bias toward academia also clearly remains in this reshuffle. KB Financial explained that the share of outside directors who are former professors fell, but it still accounts for 42 percent, a significant portion of the board. Shinhan Financial is also maintaining a structure reliant on academia, with many reappointment candidates made up of former professors.

Criticism is emerging that while new appointments expand practitioner-type figures, a structure is being repeated in which existing academic figures are maintained through reappointments. This has limited substantive changes in personnel composition despite outward change.

Calls for responsibility over 'high pay'... oversight function remains a task

In addition, data on last year's annual pay for executives, employees and outside directors disclosed by the Korea Federation of Banks showed KB Financial's average outside director pay was 88.76 million won, Shinhan Financial 92.58 million won, Hana Financial 80.60 million won and Woori Financial 71.89 million won. Average compensation for outside directors at the four major financial holding groups is about 83 million won.

Given the high level of outside director pay, calls are bound to grow for outside directors to go beyond simple advisory roles and substantially perform duties to check management and inspect internal controls. Expectations are also rising that boards should function as substantive control mechanisms rather than a 'formal organisation' amid repeated financial incidents.

However, the structure of these appointments shows a repeated pattern in which changes are concentrated in new selections while existing personnel composition is maintained through reappointments, despite financial holding groups' emphasis on independent nomination procedures. As a result, there has been progress in strengthening expertise, but assessments say structural change has been limited in terms of fundamental diversity and independence in board composition.

Ultimately, this outside director reshuffle achieved some results in functional reinforcement centred on law, consumer protection and AI, but it still left key tasks of breaking away from an academic-heavy structure and strengthening substantive oversight functions. That is why analysis says governance reform in the financial sector remains a work in progress.

A financial sector official said, "There has clearly been progress in strengthening expertise, but more fundamental reform seems necessary to secure diversity and independence in outside director composition."