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Institutional Shareholder Services (ISS) said in recent reports that it recommends investors vote against a term extension for the two scandal-ridden chairmen of Shinhan and Woori financial groups.
The reports by the global proxy advisory services company came a week ahead of the two groups' shareholders meeting next week. The meeting for Woori is scheduled for March 25 and Shinhan March 26.
ISS has over 2,000 institutional investors as members in more than 110 countries, and foreign investors often refer to the firm's advice when exercising their vote. Currently, foreign ownership in Shinhan and Woori hovers around 65 percent and 30 percent, respectively.
ISS said a vote against Shinhan Financial Group Chairman Cho Yong-byoung is warranted as his criminal conviction raises serious concerns involving his executive accountability.
The conviction of Cho, who is seeking a second three-year term, is "clear evidence of malpractice reprimanded by the relevant authorities," the report on Shinhan said.
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| Shinhan Financial Group Chairman Cho Yong-byoung |
The guilty verdict came over a year after he was indicted without physical detention in October 2018 on charges of interfering in the hiring practices at Shinhan Bank, the group's key subsidiary.
He faced allegations that he favored children of executives and high-ranking government officials while serving as the bank CEO between 2015 and 2016.
He was cleared of charges of violating the Equal Employment Opportunity act by favoring male applicants over female ones ― but the case is pending at the Supreme Court.
The group said the recommendation would not have a significant impact on the decision of its key foreign shareholders.
"We have maintained a close relationship with our key foreign stakeholders and made them understand the recommendation is not at all binding. The company board views the conviction-related management risks are largely cleared, and the investors are aware of that," a Shinhan official said.
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| Woori Financial Group Chairman Son Tae-seung |
The report said the severity of the Financial Supervisory Service (FSS) sanctions on Son involving the mis-selling of derivative-linked funds (DLF) raises serious concern over whether he is qualified to serve another term.
"Given the concerns raised and the regulatory sanctions against the company as well as the apparent lack of internal control and board oversight, a vote against Son is warranted," it said.
The FSS sanctioned Son, March 5, for failing to prevent major investor losses caused by the mis-selling of high-risk DLFs, which would preclude him from being employed at financial firms for the next three years.
On March 9, Son filed an injunction with the Seoul Administrative Court seeking to suspend the FSS sanctions.
If the court grants his request, Son will be allowed a second term despite the FSS sanctions.
Woori Financial Group said it did not care too much about the recommendation, adding it already had a majority vote.
"We have all we need," a Woori official said. "Key shareholders are already set to vote for Son. Which way foreign investors will vote will have little impact."
