We raised concerns about the governance structure of one of the largest bank holding companies in Korea as many of its directors appear to have close links with the government. We asked the bank to identify candidates who are fully independent from management and the government, as such independence is necessary for the board to be effective. To further enhance governance, we asked the company to consider creating a better link between performance and pay.
A year after we raised our concern about the board, the company appointed an independent outside director with banking and financial services experience. The number of directors with an apparent link to the government has also been reduced. Furthermore, the company made significant improvements in linking performance to pay. Its corporate governance report now contains greater detail on the metrics used in the remuneration policy, such as return on equity, risk-adjusted return on capital and total shareholder return.
These case studies are examples of companies we have either held or engaged with.
Source: Hermes Investment Management