Shareholders oust group head from Korean Air board in far-reaching vote

Lim Chang-won Reporter Posted : 2019-03-27 14:09 Updated : 2019-03-27 14:09
글씨작게 글씨크게

[Yonhap Photo]

SEOUL -- The patriarch of South Korea's troubled Hanjin group lost his control over Korean Air Lines, the country's top flag carrier, after shareholders rejected a company proposal to retain his board membership in a far-reaching vote that opened a new chapter in South Korea's corporate history.

At an annual meeting of Korean Air shareholders on Wednesday, 64.1 percent voted for Hanjin Group chairman Cho Yang-ho, 70, while 35.9 percent voted against him. Cho had needed 66.66 percent to retain his three-year term as executive director, becoming the first group head to be kicked out by shareholders in South Korea.

The ruling Cho family had a combined 33.35 percent stake in Korean Air, but Cho failed to win broad support from foreign shareholders who control about 21 percent. Some foreign investors and minority shareholders apparently sided with the National Pension Service (NPS), the second-largest shareholder with a stake of 12 percent stake.

The mood changed overnight after the NPS clarified its stance on Tuesday to vote against Cho, who has been stricken with a spate of scandals involving his wife and two daughters that have fueled public anger. Cho, who took over Korean Air's executive post in 1999, cannot participate in the decision-making process on the board of directors.

For many years, the pension fund had been criticized for being too cozy with large corporations or having blindly voted in line with management. But it changed its attitude after South Korea introduced a new system called "Stewardship Code" last year to make institutional investors active and engage in corporate governance in the best interests of shareholders.

 

[Yonhap Photo]

"It showed the positive side of the stewardship code," South Korea's top financial regulator Choi Jong-ku, chairman of the Financial Services Commission, told a parliamentary committee.

The Federation of Korean Industries (FKI), an influential lobby group of family-run conglomerates known as chaebol, expressed regret, saying the NPS should have been cautious without intervening in corporate affairs. "We hope corporate management rights will not be further shaken so that corporations can make long-term stable investments."

Cho has been indicted on embezzlement and other charges. He allegedly awarded improper contracts to companies controlled by his family, used a borrowed name to run a pharmacy illegally and embezzled company money to pay attorney fees for him and his family.

In February, Hanjin came up with a roadmap for transparent management in response to consistent pressure from shareholders to solve its crisis through an active campaign to enhance corporate governance and jettison non-core assets. Cho offered to reduce his group-wide influence by throwing away executive posts at all but three key units -- Hanjin KAL, the group's holding company, Korean Air and Hanjin Corp., a logistics unit.

However, civic group activists, Korean Air's unionized workers and others have stepped up a campaign to oust Cho from management.

Hanjin was hit hard by a scandal involving the chairman's youngest daughter, Cho Hyun-min, who allegedly threw a glass cup and sprayed plum juice during a business meeting with advertising agency officials. The scandal fueled public anger, leading to multiple investigations into the chairman, his wife and children on charges of creating a slush fund, evading taxes, bringing in luxury foreign goods illegally, abusing and assaulting company employees and others. No one has been arrested.