Is South Korea waking up to shareholder rights?
Last month National Pension Corp., with 222 trillion won ($227 billion) in assets under management, decided to challenge the automatic reelections of the chairman of Hyundai Motor Co. and three board members of heavy-equipment manufacturer Doosan Infracore. All four had been convicted of embezzlement; the Doosan executives subsequently received presidential pardons.
The government-owned pension company’s refusal to support Hyundai Motor’s Chung Mong Koo and Doosan’s Park Yong Sung, Park Yong Maan and Lee Sung Hee had no real impact on the voting — all four men sailed to victory at pro forma annual general meetings. But, in an extraordinary departure from the norm for large South Korean corporations, the votes were not unanimous. The NPC, which owns 4.56 percent of the shares of Hyundai Motor and 2.92 percent of Doosan Infracore, served notice in writing before each of the mid-March meetings that it did not support the reelections.
South Korean officials responsible for the NPC feel proud to have challenged four leaders of the powerful chaebol that have long dominated the economy. “We want to have higher morality in our financial market,” says Lee Suu Ran, director of the NPC division of the Ministry of Health and Welfare, which oversees the pension fund.
“Even though they were not able to block [the reelections], the national pension fund is quite a significant institution,” says Jang Ha Sung, dean of the Korea University Business School. Although the actions “will not have an immediate impact,” he concedes, chaebol chieftains
“will have to think twice” if they expect automatic endorsement after having been convicted of serious crimes. NPC isn’t specifically targeting other companies but plans to go after board members with criminal backgrounds on a case-by-case basis.
The pension fund appointed a special committee to investigate how to respond to the cases of Chung, who was convicted in February 2007 and had his sentence suspended by an appeals court in September, and the Doosan executives, who were convicted in 2005, given suspended sentences and pardoned in February 2007.
The committee chairman, Park Sang Soo, an economics professor at Kyung Hee University, says the committee wasn’t out to target any of the men but was simply abiding by its own policy. “We have a general guideline against people with criminal backgrounds on corporate boards,” he says.
A Hyundai Motor executive brushes off NPC’s stance as a minor annoyance in view of the ease with which Chung was reelected at a one-hour annual general meeting that the chairman himself did not attend. “The company has faith in his continued leadership and vision,” says the executive, who would speak only on a not-for-attribution basis. Hyundai Motor, he says, is prospering. Although the U.S. car and truck market has been flat, the global trend is up, he adds. Worldwide sales last year rose 4.2 percent, to 2.6 million vehicles, and the company is building new plants in Brazil, the Czech Republic, India and Russia. He notes that since Chung, the oldest surviving son of the late Hyundai group founder Chung Ju Yung, took over, with his father’s support, after a power struggle with an uncle and cousin nine years ago, the company’s shares have risen fivefold. “You can’t argue with the company’s success,” the executive says.
Maybe so, but NPC’s stake represents the largest single block of shares held apart from those controlled by Chung, who owns 5.19 percent, and parts manufacturer Hyundai Mobis, which owns 15 percent. “Hyundai Mobis is the key to the kingdom,” explains a Hyundai Motor source, and Chung controls Mobis with 16 percent of the shares. Kia Motors, whose president is Chung’s only son, Chung Eui Sun, owns 17.6 percent of Mobis’s shares; Hyundai Motor in turn owns 38.67 percent of Kia. Prosecutors alleged that Chung, 70, embezzled $110 million to solidify his son’s control and bribe government officials. He was sentenced to three years in prison last year after having been detained for two months without bail, but a higher court, citing Chung’s value to the company and the nation, suspended the sentence.
Doosan Heavy Industries chairman Park Yong Sung; his brother Park Yong Maan, chairman of Doosan Infracore; and Doosan Engine CEO Lee Sung Hee were found guilty of embezzling millions of dollars from their companies in a power struggle against a third Park brother, who provided information to prosecutors. The executives won a presidential pardon last year.
Some activists believe it will be some time before South Korea’s burst of shareholder activism has any real impact. Still, says Hansung University economics professor Kim Sang Cho, “the NPC decision is a good sign.”
