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Cho Yang-ho’s reappointment denied during general shareholders meeting vote
The National Pension Service (NPS) has finally decided to oppose Hanjin Group Chairman Cho Yang-ho’s reappointment as an inside director at Korean Air. The opposing vote by NPS – the airline’s second-largest shareholder with an 11.7% stake. A vote during a general shareholders meeting the following day confirmed this opposition, effectively denying Cho his bid for reappointment.
Following the general shareholders vote, Cho expressed his intentions to continue running the company as an “outside director.”
In a meeting on the afternoon of Mar. 26, the NPS Stewardship Expert Committee reportedly decided to oppose Cho’s re-appointment as an inside director at Korean Air, concluding that he had engaged in actions corporate company value and/or infringing upon shareholder rights.
The stewardship expert committee proved a difficult process, with members of the responsible investment subcommittee hastily summoned when the shareholder right exercise subcommittee failed to yield a conclusion amid tense differences between its members. The meeting was narrowly concluded when the belatedly arrived responsible investment subcommittee members voted against Cho’s re-appointment as inside director. The shareholder right exercise subcommittee previously discussed the issue on the evening of Mar. 25, but decided to resume discussions the following day after failing to bridge differences among its members.
First case of stewardship exercise by NPS
The key question concerned a determination on whether Cho’s actions had compromised shareholder value. Committee members nominated by the Korea Employers Federation (KEF) argued that voting authority should be exercised after an initial court judgment, while members nominated by the Korean Confederation of Trade Unions (KCTU) countered that it could be exercised from the time of the prosecutors’ indictment in cases involving objective evidence of actions compromising shareholder value. Cho is currently engrossed in his first trial on charges including embezzlement for allegedly receiving 19.6 billion won (US$17.27 million) in “tolls” from Korean Air suppliers and using company money to pay personal legal fees.
“Because Cho Yang-ho is currently being tried on multiple criminal charges involving embezzlement, breach of trust, and fraud in connection with the company, his very performance of director duties for Korean Air compromises shareholder value and diminishes the company’s value and reputation,” the group Solidarity for Economic Reform said the same day. But some members of the expert committee remained adamant in insisting on approving Cho’s appointment as an inside director.
Following opposition from the second-largest shareholder NPS (11.7%), the fate of Cho’s appointment as a director was confirmed at a general shareholders’ meeting on Mar. 27, with 64.1% percent of shareholders voting in favor and 35.9% voting against. Cho needed at least two-thirds of shareholders to vote in favor to secure his reappointment as inside director.
Cho and other parties with a “special relationship,” including Hanjin affiliates, account for a 33.34% ownership stake. Overseas institutional investors have already indicated their opposition before the meeting. According to the Korea Corporate Governance Service “voting rights plaza” web page, Canada’s British Columbia Investment Management Corporation (BCI) and Canada Pension Plan Investment Board (CPPIB) and SBA Florida expressed their opposition to the reappointment beforehand.
While the NPS did manage with some difficulty to uphold its stewardship code, the Minister of Health and Welfare (MOHW) and NPS fund management headquarters appear poised to face criticism over their roles in the process. NPS waited until Mar. 21 – just six days ahead of a general shareholders’ meeting for Korean Air, a “focused management” company requiring preliminary announcement on the planned course for the use of voting rights – to convene an investment committee meeting and refer the matter to the stewardship expert committee. As a result, the stewardship expert committee did not have adequate time to hear opinions, nor was there a public debate process to allow different institutional investors to refer to its decision.
Meanwhile, the stewardship expert committee also decided to oppose the appointment of SK chairman Chey Tae-won as an inside director at SK, citing his history of actions compromising corporate value and/or violating shareholder rights.
By Lee Wan, staff reporter, and Kwack Jung-soo, business correspondent
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