Executives at Koreatown’s banks have played a fast-paced game of musical chairs for decades. Now, the tempo is finally slowing down.
Local Korean-American lenders have always given their chief executives three-year contracts, contributing to high turnover in the corner office. But now they are breaking from that tradition and giving executives longer terms. Five-year deals are now common.
Analysts and executives said it’s a sign that the banks’ boards have realized longer deals are needed to keep top bankers and avoid the turmoil that accompanies their departure, and that short terms don’t give top executives enough time to accomplish goals.
“What this means is that boards are getting more serious about letting CEOs do what they do,” said Julianna Balicka, an analyst who follows several Korean-American banks for San Francisco brokerage Keefe Bruyette & Woods. “Turnover has not been good for these banks.”
Last month, Kevin Kim, chief executive of BBCN Bancorp Inc., got a new five-year deal. And last year, Hanmi Financial Corp. gave C.G. Kum a four-year contract when it hired him as chief executive.
The trend began at a smaller lender, Open Bank, which gave Chief Executive Min Kim a five-year contract in 2010, and has now spread to most local Korean-American banks.
Wilshire Bancorp Inc., which recently renewed Chief Executive Jae Whan Yoo’s contract for three more years, appears to be the final holdout.
Yoo, who was chief executive at Hanmi and BBCN predecessor Center Financial before joining Wilshire in 2011, said the change has come suddenly, and that he’s heard some banks have started offering contracts stretching even longer.
“Now it seems to be going to five years or even over five years,” he said. “Everything has changed.”
In the past 10 years, Hanmi has had four chief executives and Wilshire has had three. BBCN, created in 2011 by the merger of two other banks, is already on its second. Its predecessors, Nara Bancorp and Center Financial, each had a handful of top executives in the years before the merger.
That’s a remarkable amount of turnover compared with other banks. City National Corp.’s Russell Goldsmith has been on the job for 19 years. Dominic Ng has led East West Bancorp for 23.
Employment contracts are only part of the reason for turnover, however. Goldsmith and Ng, for instance, both have employment agreements that last for only a few years. The difference is that while contracts at most banks are renewed unless there’s a problem, contracts at Korean-American banks are commonly allowed to expire. That’s driven high turnover both by pushing some executives out after just three years and by making executives nervous – and thus more likely to leave for competing banks, said Timothy Chrisman, founder of downtown L.A. executive search firm Chrisman & Co.
“It’s the only place I’ve seen in banking where contracts were, without provocation, just not renewed,” he said. “It’s bound to create anxiety and potential movement to other places.”
Alvin Kang, formerly the chief executive of BBCN and Nara, said bank boards will let contracts expire as a way to oust executives without having to give specific reasons.
“For the board, it makes it easier to get rid of the CEO if you don’t like them,” he said.
When executives go, they often take other employees with them, leading to internal turmoil and a revolving door of bankers among the banks, most of which are headquartered along a one-mile stretch of Wilshire Boulevard in Koreatown.
Adding just a few more years to CEOs’ contracts, Chrisman said, signals that banks have realized that the short terms are a problem.
“You have to start getting more consistency in the executive management,” he said. “These five-year terms mean the banks understand they need to put a stop to this.”
Min Kim of Open Bank signed her five-year contract in 2010. It’s likely the first five-year deal for the chief executive of a Korean-American bank, said Kang, who took over for Kim as chief executive at Nara after she abruptly left that bank.
“She’s a tough negotiator and she came out with a five-year deal,” he said. “I think it all started with Min Kim.”
Kim said she wanted a longer deal because three years is not enough time to develop a strategy and put it in place.
“You come in and you spend the first six to nine months just coming up with a business plan,” she said. “After that, you have only about two years left to execute before it’s time to negotiate a new contract. Now, boards have realized you need more time to execute a plan and show results.”
They’ve also realized there aren’t that many candidates to choose from, said Joanne Kim, chief executive of Commonwealth Business Bank (Joanne Kim, Min Kim and Kevin Kim are not related.) She’s been in that post since 2011 and this year signed up for a five-year term.
The first generation of Korean-American bankers, the ones who started banks here in the 1980s or were early employees, have mostly retired, leaving fewer familiar faces and making it more important for banks to hold on to experienced executives, she said.
“The CEOs with reputations, they’re getting older,” she said. “The pool is getting thinner.”
Still, there are holdouts. Steven Koh, longtime chairman of Wilshire Bancorp, said he doesn’t see any need to offer longer contracts. If an executive performs, their contract will be renewed.
“If somebody does a good job, not to renew is no benefit to us,” he said. “Three years is enough time to show their capacity.”
He also said short deals keep executives on a short leash, ensuring they don’t get complacent.
“If somebody is really good, a long-term contract could be good,” he said. “But if someone with a long-term contract gets lazy, that contract could be poisonous.”
For reprint and licensing requests for this article, CLICK HERE.
Stories You May Also Be Interested In
- BBCN’s Min Steps Down as CEO
- Koreatown Bank’s Growth Plan Leads East ... to New Jersey
- Former BBCN Chief Joins Commonwealth Board
- Joanne Kim Gets New Top Bank Post
- CEO Carousel for Koreatown Banks
- Wilshire Bancorp Makes East Coast Acquisition
- Former Nara Chief Joins First Standard Bank
- Fellow Lenders Save East L.A’s Pan American Bank