The better governance, the more stability in finance

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Hello, readers!

The FSC unveiled its three major missions for 2013 which are “Creative Finance”, “Financial Inclusion”, and “Solid Financial System” at the briefing with President Park on April 3. As it reads, each of the missions is suggesting solutions to promote creative economy, provide stronger safety net for the financially-excluded, and stabilize the financial market through making solid foundation. What I picked up to tell you today is about “Solid Financial System”, especially for “Improving Corporate Governance of Financial Institutions.”

First of all, we need to clarify why we need this work as a matter of fact. There have been quite a few problems regarding the corporate governance consistently such as “the moral hazard of CEOs and large shareholders”, “diminishing responsibility of outside directors”, “absence of CEOs” and else. As President Park’s new cabinet made its mind to get rid of these old financial inflammations, we FSC suggested four remedies to get it back on its own pace.

improve governanceLet’s move on to the first remedy. It is the actual Establishment of the Law for Corporate Governance. This will strengthen the role of board of directors to make the corporations more transparent and more responsible for what they do. In addition it is expected to promote the transparency of salary and pay the employee as reasonably as possible. J It also mandates the corporation to establish its own internal governance regulations and open it to the public for clearness. The cabinet expects to find some changes in conventional governance structure through this enactment. So do I!

Then, what is the second remedy? The FSC is trying to make an advanced governance structure by amending the regulations concerning “the Outside Directors”. There is a plan to make a task force consisting of the public and the government to inspect the present corporate management system and find some bad custom and revolutionize it. We hope it will bring up more stable governance with the outside directors as well.

The third is about “The Eligibility Examination for Large Shareholders”. It means to examine a person to find whether he is eligible as a large shareholder of a corporation or not. A person fails to be a shareholder, for example, if he/she has records of crime or monetary penalty over a certain amount. So far this has been covering only the shareholder of the bank and mutual savings. There has been no feasible action to keep an inappropriate person from participating in this sphere when it comes to nonmonetary institutions. But the FSC is going to extend the coverage to INCLUDE those institutions as one of their struggles to improve the quality of corporate governance.

Last but not least, the FSC is planning to stimulate the separation of commerce and baking. This is a measure to prevent a commerce capital from encroaching on a financial one and taking some unfair actions in corporate governance. Actually it is planned to cut down the share-retaining limits for people who are not working in financial fields. A non-financial person can retain 9% in maximum of the stakes at the moment, but as the plan says, it is going to be scaled down to certain lower proportion.

As the FSC has exclaimed to deal with financial markets with the four measures above, the executives and workers are actually waiting for them with tension. So we all need to stay tuned and see what’s going to be different in financial area and especially for its governance in the near future. I hope that more advanced and transparent finance comes as soon as possible.

It was my pleasure to let you know this kinda big deal with the FSC! Have a great day 🙂

By Kicheol Lee (summfrea@hanmail.net)

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