Shinhan Financial Group is a financial services holding company headquartered in South Korea. It provides consumer and corporate banking, credit card, investment and insurance services.
Shinhan faced a series of allegations of fraud and corruption in 2010 and after accusations of embezzlement and breach of trust from prosecutors, its chair resigned. A new CEO was appointed in 2011 after the resignation of three top executives. He focused on re-building the brand and trust, concentrating on Shinhan's commitment as a provider of what it calls compassionate finance. In 2017, another CEO was appointed, who supports the same commitment to compassionate finance through the company’s expansion in digital financial services.
Our engagement with the company initially concentrated on governance and ethics. More recently, we have also focused on the risks and opportunities of the expansion of the business in South East Asia, covering human capital management, human rights and financial inclusion.
We began our engagement in 2008, when we co-signed a letter with other investors to the company seeking confirmation that the financial statements included in its AGM notice are final and accompanied by the auditor’s concluding opinion. We also pushed for more transparency in the company’s succession planning process involving the selection and nomination of outside directors.
One of the highlights of our engagement was a meeting with the company’s lead independent director in 2016. We gained insights into how the board functions and how he fulfils his board duties. We also witnessed the director interacting with executives from different departments, thus catching a glimpse into company culture.
We explored whether the company’s lending services to small and medium-sized enterprises in South Korea could be adopted in other markets. A meeting with the head of the overseas fintech programme in 2017 strengthened our conviction that the company is creating positive social impact and building a sustainable growth business. We also discussed the human rights angle of access to finance and recommended that the company adopt the UN Guiding Principles on Business and Human Rights (UNGP) Reporting Framework to improve its human rights management and identify any gaps.
Changes at the company
The company now discloses its audited financial statements prior to its annual general meeting in a timely manner, a good practice that is still uncommon among companies in South Korea.
It also improved its succession planning, which was reflected in the smooth CEO transition of 2017 and introduced new policies and standards to promote ethical behaviour. The company has implemented an ethical risk management programme that provides continuous training for employees. As part of this, in a monthly group meeting, each department reviews how the respective performance goals relate to the compassionate finance mission.
The company took on board our recommendations and applied the UNGP Reporting Framework to its disclosure on human rights. So far, it has conducted human rights assessments at seven of its major subsidiaries and at 24 partner companies. The company described to us the steps it has taken to address the issues identified and how it leverages its market position to improve the practices of its suppliers. As a result of the changes the company has made, its ESG rating by an investment decision tool provider improved from BBB in 2013 to AA in 2017.
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