By Yoon Ja-young
The history of the chaebol shows that they can falter on the wrong decisions made by the owning family, damaging the interest of the majority shareholders.
The shareholders’ meeting and outside directors are designed to work as a buffer to such “owner risks,” but it seems that they are working as a mere “rubber stamp.”
Data from the Corporate Governance Service (CGS), for instance, shows that the outside directors at Hyundai Motors approved all of the 139 issues raised at board meetings during the past five years.
That includes the company’s purchase of KEPCO’s land in Samseong-dong, southern Seoul. Hyundai won the bidding by offering 10.5 trillion won, or $10 billion, which is around three times the appraisal value of the land.
The bold bidding by the Hyundai Motors’ chairman, however, brought criticism that the company was ignoring the interest of shareholders. Its share price has plunged since the decision amid a massive selloff by foreign investors.
Korean Air, which showed in the recent “nut rage” scandal how the owner family is ruling the group like a monarchy, also had puppet outside directors. They raised no opposition voice to any of 152 issues raised over the past five years.
The CGS pointed out that even institutional investors are reluctant to protests against management, regardless of whatever decision they make. At shareholders’ meetings held in the first half of the last year, institutional investors voted against management only 1.4 percent of the time.
“The ratio of the opposition has been rising from 0.4 percent in 2012 to 0.9 percent in 2013 and 1.4 percent in 2014. However, it is still far below our recommendation of 18.7 percent,” said Chung Ha-na, a researcher at the service.
Nine out of 10 investors that were most active in challenging management were foreign investors. The CGS estimates that as local institutional investors often have relationships with conglomerates or financial groups, it is difficult for them to protest.
It added that management will be allowed to do whatever they want if institutional investors don’t actively exercise their voting rights, which could risk deteriorating corporate value.