Shinhan Financial Group’s Stance
on ISS Concerns
Shinhan Financial Group places the highest priority on sound governance and enhancing shareholder value, while consistently respecting the opinions of shareholders and stakeholders.
However, the proxy advisory firm ISS has persistently issued dissenting recommendations regarding some of our director election proposals, undermining the Board’s focus and value.
The Group would like to outline the Board’s response to ISS's recommendations and kindly asks you to consider the following when making your voting decisions.
Board’s Position 1
ISS’s opposition to the reappointment of directors began in March 2021, the year following the approval of the reappointment of Cho Yong-byoung, former CEO.
ISS defined the indictment of former CEO Cho on charges of hiring irregularities (initial indictment: October 2018) as a material failure of governance.
Moreover, citing the Board’s inaction in dismissing former CEO, ISS has consistently opposed the reappointment of directors whose terms overlapped with his.
However, the allegations against the former CEO Cho were ultimately ruled not guilty by the appellate court and the Supreme Court in 2022, resolving all governance-related risks associated with the matter.
Cho Yong-byoung,
CEO, also ruled not guiltythe Supreme Court
“Hiring corruption charges” – not guilty in the appellate court
“Shinhan Bank hiring corruption” – verdict confirmed as not guilty
The Board’s Efforts Related to
the Legal Proceedings
All director nominees were appointed in or after the year former CEO Cho was reappointed (March 2020), and they had no involvement in the decision regarding his tenure extension at that time.
2024
Appointment of Directors Song Seongjoo, Choi Young Gwon
2023
Appointment of Directors Jin Okdong, Jeong Sang-hyuk
2022
Appointment of Directors Kwak Su Keun,
Lee Yong Guk, Bae Hoon
2021
Appointment of Director Kim Jo Seol
2020
Reappointment of CEO Cho Yong-byoung
Appointment of Director Yoon Jaewon
2017
Initial appointment of CEO Cho Yong-byoung
Contrary to ISS’s claim that no action was taken, the Board promptly convened a Board meeting immediately after the 2021 AGM, when ISS first raised its opposition, to discuss the relevant matters.
The Board also took the following immediate actions with
a primary focus on governance stability and shareholder value, including transparently disclosing the Board’s position through shareholder letters and engagements.
First Half 2021
The Board convened to reassess the decision regarding former CEO Cho’s reappointment from both procedural and factual perspectives.
At the time, the Board determined that it would be inappropriate to assess the eligibility of CEO candidate solely based on the prosecution’s indictment. Given the need to verify the legal validity of the case by comparing it with similar past precedents, the Board concluded that it was necessary to await the final court ruling. This decision was transparently communicated to shareholders through letters and engagements.
November 2021
Ahead of the appellate court’s verdict, independent directors agreed during a regular Board meeting that, if necessary, they would immediately convene a meeting to discuss response measures. However, as the ruling resulted in acquittal, the Board opted to await the final verdict without additional action.
The results of the appellate court decision and the Board’s response were shared with shareholders via a shareholder letter.
June 2022
With the Supreme Court’s final ruling of acquittal in June 2022, all legal proceedings concluded, eliminating governance uncertainty. The Board’s communicated this outcome to shareholders through a shareholder letter.
Since the onset of this issue, the Board has conducted an objective review of the litigation progress, made prudent decisions focused solely on shareholder value, and actively communicated the process transparently to our shareholders.
Despite these multifaceted efforts, opposing the reappointment of Board members indefinitely based solely on their past inaction regarding former CEO Cho’s dismissal does not accurately reflect the Board’s efforts.
In this case,
1. 6 years have passed since the initial
allegations emerged
2. The case was ultimately concluded with
a ‘not guilty’ verdict
3. Former CEO Cho has already stepped
down from the Board
Nevertheless, applying the opposition recommendations indefinitely based solely on past inaction fails to account for the Board’s efforts at the time. Therefore, when assessing directors, the actual activities of the Board should be considered. Additionally, we believe that a sunset clause should be introduced to reasonably define the period of application.
What is a Sunset Clause?
A principle that updates evaluation criteria fixed on past conditions, preventing the rigid application of outdated standards despite changes in legal or factual contexts.
Board’s Position 2
In 2024 ISS report, ISS reversed its assessment on improvement measures related to the Lime Fund Incident.
Inconsistency in ISS’s recommendation
2023 ISS Assessment
Acknowledgement of CEO Jin Okdong’s proactive efforts in responding to the Lime Fund Incident, including measures to minimize customer losses
2024 ISS Assessment
Evaluated the Lime Fund Incident as a failure of internal control
In 2023, ISS supported the election of CEO Jin Okdong, recognizing his contribution to effectively addressing the Lime Fund Incident. However, in 2024, just one year later, ISS reversed its stance and classified him as a ‘problematic director’ and extending its opposition to other directors due to the Board’s alleged inaction in pursuing CEO Jin’s dismissal.
When requested an explanation from ISS regarding this inconsistency in their approach, they claimed that their favorable recommendation in 2023 was an exceptional decision made due to the uncertain circumstances surrounding the COVID-19 pandemic.
However, given the following circumstances, we believe that this explanation is insufficient as a basis for reversing its position.
Reason 1
The 2023 ISS report does not mention any exceptional approval due to COVID-19, and by the time of its publication, the COVID-19 situation had largely subsided, making it difficult to justify an exceptional judgment.
Reason 2
In contrast, at the 2020 annual shareholders meeting - when the COVID-19 situation was particularly severe - ISS expressed opposition to former CEO Cho’s appointment without applying any exceptional considerations.
The Lime Fund Incident and
Shinhan’s Response
In fact, during the Lime Fund Incident, then-group CEO Cho demonstrated accountability by withdrawing his candidacy for CEO reappointment.
Despite his tenure as CEO of Shinhan Bank overlapping with the Lime Fund sales period for only a brief 4-5 months, CEO Jin Okdong swiftly decided to halt sales and took proactive post-management measures. His efforts minimized financial consumer losses and strengthened Shinhan Bank’s internal controls.
The Financial Supervisory Service imposed only minimal disciplinary measures against CEO Jin, a response that stands in stark contrast to the severe penalties given to CEOs of other financial institutions involved in the same incident.
Despite being aware of the limited disciplinary actions taken by Korean regulatory authorities, ISS has now classified the Lime Fund Incident as a significant governance failure on CEO Jin's part, abruptly labeling him a 'problematic director.' This classification comes disregards CEO Jin's efforts to improve internal controls during his tenure as Shinhan Bank’s CEO, as well as the resignation of former CEO Cho in connection with the Lime Fund Incident.
We have informed that ISS’s reversal of its assessment raises concerns regarding consistency and requested a revision of the report.
Shinhan Financial Group’s Stance on ISS Concerns
Ongoing Communication
between SFG and ISS
Since 2021, Shinhan Financial Group has continuously engaged with ISS through active communication. However, ISS has maintained its reversed stance without providing a convincing rationale.
2021-2023
Ongoing dialogue with ISS
2024.09
Shifts in ISS’s stance and enhanced communication
from Shinhan Financial Group
2024.10
Opinion submission to the ISS Feedback Review Board
The Board of Directors of Shinhan Financial Group is recognized as one of the most exemplary in Korea by both domestic and international corporate governance rating agencies. Each director is committed to responsible decision-making and fulfilling their role in line with this high standard.
We respectfully ask our shareholders to consider our perspective on ISS’s recommendations and support the Board’s ongoing commitment to responsible stewardship.
Board’s Position 2
In 2024 ISS report, ISS reversed its assessment on improvement measures related to the Lime Fund Incident.
Inconsistency in ISS’s recommendation
2023 ISS Assessment
Acknowledgement of CEO Jin Okdong’s proactive efforts in responding to the Lime Fund Incident, including measures to minimize customer losses
2024 ISS Assessment
Evaluated the Lime Fund Incident as a failure of internal control
In 2023, ISS supported the election of CEO Jin Okdong, recognizing his contribution to effectively addressing the Lime Fund Incident. However, in 2024, just one year later, ISS reversed its stance and classified him as a ‘problematic director’ and extending its opposition to other directors due to the Board’s alleged inaction in pursuing CEO Jin’s dismissal.
When requested an explanation from ISS regarding this inconsistency in their approach, they claimed that their favorable recommendation in 2023 was an exceptional decision made due to the uncertain circumstances surrounding the COVID-19 pandemic.
Reason 1
The 2023 ISS report does not mention any exceptional approval due to COVID-19, and by the time of its publication, the COVID-19 situation had largely subsided, making it difficult to justify an exceptional judgment.
Reason 2
In contrast, at the 2020 annual shareholders meeting - when the COVID-19 situation was particularly severe - ISS expressed opposition to former CEO Cho’s appointment without applying any exceptional considerations.
However, given the following circumstances, we believe that this explanation is insufficient as a basis for reversing its position.
The Lime Fund Incident and
Shinhan’s Response
In fact, during the Lime Fund Incident, then-group CEO Cho demonstrated accountability by withdrawing his candidacy for CEO reappointment.
Despite his tenure as CEO of Shinhan Bank overlapping with the Lime Fund sales period for only a brief 4-5 months, CEO Jin Okdong swiftly decided to halt sales and took proactive post-management measures. His efforts minimized financial consumer losses and strengthened Shinhan Bank’s internal controls.
Shinhan Finanical Group's Efforts to
Lime Fund Issue
The Financial Supervisory Service imposed only minimal disciplinary measures against CEO Jin, a response that stands in stark contrast to the severe penalties given to CEOs of other financial institutions involved in the same incident.
Despite being aware of the limited disciplinary actions taken by Korean regulatory authorities, ISS has now classified the Lime Fund Incident as a significant governance failure on CEO Jin's part, abruptly labeling him a 'problematic director.' This classification comes disregards CEO Jin's efforts to improve internal controls during his tenure as Shinhan Bank’s CEO, as well as the resignation of former CEO Cho in connection with the Lime Fund Incident.
We have informed that ISS’s reversal of its assessment raises concerns regarding consistency and requested a revision of the report.
Ongoing Communication between SFG and ISS
Since 2021, Shinhan Financial Group has continuously engaged with ISS through active communication. However, ISS has maintained its reversed stance without providing a convincing rationale.
We respectfully ask our shareholders to consider our perspective on ISS’s recommendations and support the Board’s ongoing commitment to responsible stewardship.
The Board of Directors of Shinhan Financial Group is recognized as one of the most exemplary in Korea by both domestic and international corporate governance rating agencies. Each director is committed to responsible decision-making and fulfilling their role in line with this high standard.
2021-2023
Ongoing dialogue with ISS
2024.09
Shifts in ISS’s stance and enhanced communication
from Shinhan Financial Group
2024.10
Opinion submission to the ISS Feedback Review Board
Shinhan Financial Group places the highest priority on sound governance and enhancing shareholder value, while consistently respecting the opinions of shareholders and stakeholders.
However, the proxy advisory firm ISS has persistently issued dissenting recommendations regarding some of our director election proposals, undermining the Board’s focus and value.
The Group would like to outline the Board’s response to ISS's recommendations and kindly asks you to consider the following when making your voting decisions.
Board’s Position 1
ISS’s opposition to the reappointment of directors began in March 2021, the year following the approval of the reappointment of Cho Yong-byoung, former CEO.
However, the allegations against the former CEO Cho were ultimately ruled not guilty by the appellate court and the Supreme Court in 2022, resolving all governance-related risks associated with the matter.
ISS defined the indictment of former CEO Cho on charges of hiring irregularities (initial indictment: October 2018) as a material failure of governance.
Moreover, citing the Board’s inaction in dismissing former CEO, ISS has consistently opposed the reappointment of directors whose terms overlapped with his.
The Board’s Efforts Related to
the Legal Proceedings
All director nominees were appointed in or after the year former CEO Cho was reappointed (March 2020), and they had no involvement in the decision regarding his tenure extension at that time.
Since the onset of this issue, the Board has conducted an objective review of the litigation progress, made prudent decisions focused solely on shareholder value, and actively communicated the process transparently to our shareholders.
Contrary to ISS’s claim that no action was taken, the Board promptly convened a Board meeting immediately after the 2021 AGM, when ISS first raised its opposition, to discuss the relevant matters.
The Board also took the following immediate actions with a primary focus on governance stability and shareholder value, including transparently disclosing the Board’s position through shareholder letters and engagements.
First Half 2021
The Board convened to reassess the decision regarding former CEO Cho’s reappointment from both procedural and factual perspectives.
At the time, the Board determined that it would be inappropriate to assess the eligibility of CEO candidate solely based on the prosecution’s indictment. Given the need to verify the legal validity of the case by comparing it with similar past precedents, the Board concluded that it was necessary to await the final court ruling. This decision was transparently communicated to shareholders through letters and engagements.
November 2021
Ahead of the appellate court’s verdict, independent directors agreed during a regular Board meeting that, if necessary, they would immediately convene a meeting to discuss response measures. However, as the ruling resulted in acquittal, the Board opted to await the final verdict without additional action.
The results of the appellate court decision and the Board’s response were shared with shareholders via a shareholder letter.
June 2022
With the Supreme Court’s final ruling of acquittal in June 2022, all legal proceedings concluded, eliminating governance uncertainty. The Board’s communicated this outcome to shareholders through a shareholder letter.
Official Supreme Court Judgement
(Available in Korean only)
In this case,
1. 6 years have passed since the initial
allegations emerged
2. The case was ultimately concluded
with a ‘not guilty’ verdict
3. Former CEO Cho has already
stepped down from the Board
In this case,
1. 6 years have passed since the initial
allegations emerged
2. The case was ultimately concluded
with a ‘not guilty’ verdict
3. Former CEO Cho has already
stepped down from the Board
Nevertheless, applying the opposition recommendations indefinitely based solely on past inaction fails to account for the Board’s efforts at the time. Therefore, when assessing directors, the actual activities of the Board should be considered. Additionally, we believe that a sunset clause should be introduced to reasonably define the period of application.
What is a Sunset Clause?
A principle that updates evaluation criteria fixed on past conditions, preventing the rigid application of outdated standards despite changes in legal or factual contexts.
Despite these multifaceted efforts, opposing the reappointment of Board members indefinitely based solely on their past inaction regarding former CEO Cho’s dismissal does not accurately reflect the Board’s efforts.
Cho Yong-byoung,
CEO, also ruled not guiltythe Supreme Court
“Hiring corruption charges” – not guilty in the appellate court
“Shinhan Bank hiring corruption” – verdict confirmed as not guilty
2024
Appointment of Directors Song Seongjoo,
Choi Young Gwon
2023
Appointment of Directors Jin Okdong,
Jeong Sang-hyuk
2022
Appointment of Directors Kwak Su Keun,
Lee Yong Guk, Bae Hoon
2021
Appointment of Director Kim Jo Seol
2020
Reappointment of CEO
Cho Yong-byoung
Appointment of Director
Yoon Jaewon
2017
Initial appointment of CEO
Cho Yong-byoung