Korean financial industry faced huge environmental changes after IMF crisis in 1997. The government abolished a number of regulations, new customer needs emerged, and foreign competitors were allowed to enter the local market. While coping with these new conditions, most of Korean local financial companies tended to focus on M&As which they thought might make them more competitive. However, Shinhan showed somewhat different strategic choice. Instead of concentrating on enlarging its size, Shinhan decided to convert its firm structure into a financial holding company system. Shinhan considered that it is more important to have a successful corporate governance structure which can diversify its business and maximize synergy between its business units than to simply grow its size with M&As. As a result, Shinhan became one of the leading companies afterwards with a holding company system. However, merely introducing a holding company system does not lead to a successful corporate governance structure because there are several essential requirements to be met. Shinhan successfully fulfilled these requirements, and showed the possibility of a holding company system to function as an effective corporate governance structure.