Professional managers come to fore
Owners hand over management rights to non-family members
By Park Jae-hyuk
A growing number of corporate owners have started letting more professionals manage their companies in recent years.
Although there are disputes over management between owners and executives, more of the former are opting for peaceful transfers of management to businesspeople rather than handing it to their offspring.
KTB Investment & Securities is one such company having embroiled in a management dispute.
Its Chairman Kwon Sung-moon and Vice Chairman Lee Byung-cheol were in a conflict over the management of the medium-size securities firm.
Kwon, the owner of the company, was dubbed the master of M&A in the 1990s because he accomplished dozens of such deals and made 100 billion won ($93 million) in profits by selling Auction and Job Korea. After acquiring Korea Technology Banking in 1999, the nation’s largest venture capital firm at that time, he established KTB Investment & Securities.
The chairman hired the vice chairman in 2016, due to the company’s lingering poor performance. However, the joint managers have kept each other in check, defending their shares.
Against this backdrop, Lee recently became the preferred buyer of Kwon’s 1.32 million shares, according to a contract they signed in 2016 when they agreed to jointly manage the company. If one of the joint managers decides to sell his shares the deal allows the other to be the preferred buyer of them.
Kwon said he made the decision to normalize the company, but Lee regarded the decision as a fraudulent tactic to avoid handing over the company to the vice chairman, given that Lee is having difficulty acquiring the stock at the moment.
As Kwon and Lee reached an agreement Wednesday, the former will leave the company and the latter will be the largest shareholder.
Peaceful handovers
Unlike KTB, other companies have achieved a peaceful succession of management rights.
Pulmuone, one of the nation’s leading food firms, recently ended its 33-year owner management because Chairman Nam Seung-woo, who founded the company in the early 1980s, gave control to CEO Lee Hyo-yul, who is not a member of the chairman’s family.
Three years ago, Nam announced he would hand over management rights to a professional manager, instead of his son. The founder retired at the beginning of the New Year and will serve as chairman of Pulmuone’s board of directors, advising Lee.
Lock & Lock, the Seoul-based plastic container maker, is another Korean company setting an example.
Founder Kim Jun-il sold a 63.56 percent stake held by himself and his family to Affinity Equity Partners for 629.3 billion won ($558 million) in August last year, citing health problems and the necessity of innovation for the 39-year-old Korean company as his reasons for selling control of the company.
He had promised not to hand over the company to his sons, astonishing Korean society used to watching chaebol groups committing dubious acts for father-to-son ownership transfers.
Former Samsung SDS Vice President Kim Seong-hoon was appointed the new director of Lock & Lock in December, promising to cooperate with the founder, employees and global investors.
End of owner management?
There has yet to be a consensus on better corporate governance not only in Korea but also in other countries. Most Korean companies promoted heirs of the owners to powerful positions at the beginning of this year.
According to the Korea Economic Research Institute, a private think tank, family-owned companies show better profitability and higher investments in research and development.
“Because family members tend to feel more responsibility for their companies, family-owned enterprises can perform better and invest more,” Professor Koh Yun-sung at the Hankuk University of Foreign Studies said. “Korean society should reform its mindset toward family-controlled firms.”
Pulmuone founder Nam, on the other hand, said CEO management is reasonable for listed companies, while owner management is better for unlisted companies.
Industry officials expect most great-great grandchildren of chaebol founders will not succeed in their family businesses, due to the prevalence of CEO management.