Shareholders urged to stop Korean Air owner family
As the daughters of Korean Air's chairman have seriously hurt corporate value, the NPS is urged to play its role as a major shareholder to normalize the management. / Korea Times file
By Yoon Ja-young
As the irregular behaviors of Korean Air Chairman Cho Yang-ho's daughters are tarnishing the corporate image, small investors are demanding other large shareholders including the National Pension Service (NPS) actively exercise their voting rights to stop the family members and pull up the corporate value.
Despite the chairman's public apology over his daughter Cho Hyun-min, who threw water in the face of an ad agency manager during a meeting, public anger is only increasing as a series of testimonies have followed regarding how the family has abused employees and contractors.
Korean Air closed at 34,250 won on the bourse Tuesday, unchanged from the previous day. Though the stock price has not changed much since April 16 when the incident occurred, some analysts say the repetition of such events are increasing the owner risk of Korean Air and its affiliates.
Um Kyung-a, an analyst at Shinyoung Securities, said it is especially negatively affecting Jin Air, a budget unit of Korean Air.
“The continuous exposure to owner risk led to a discount of its brand value. Passengers of low-cost carriers (LCCs) are generally younger than those of full-service carriers. They are more sensitive to prices and less loyal to brands. The news that hurt its brand value will negatively affect both its operation and demand in the medium term.”
The analyst explained she discounted the target price of Jin Air by 20 percent as its continuous exposure to governance risks should be reflected in its valuation.
She also discounted the target price of Hanjin KAL by an additional 10 percent due to governance risks.
“There should be no further deterioration of brand value due to governance risk,” she stressed.
Investors are criticizing that the chairman's family has been controlling the whole business despite holding only a small stake.
According to the company's regulatory filings, the chairman holds only a 0.01 percent stake in Korean Air. He has been controlling the carrier through Hanjin KAL, which is the biggest shareholder of Korean Air with a 29.96 percent stake. The owner family holds a 24.79 percent stake in Hanjin KAL.
Despite the small stake, the owner family seriously tarnished the corporate brand value. According to Brand Stock, a company that evaluates brand value, Korean Air Lines lost around 8 percent of its brand value due to the scandal. “Brand value can plunge in an instant, and it is extremely difficult to recover once it falls,” an official at Brand Stock explained.
As the owner family is feared to inflict financial damage to shareholders, voices are increasing for the shareholders including the NPS to actively exercise their rights as shareholders for their own good and exclude Cho's family from management. The NPS is the second-largest shareholder of Korean Air and Hanjin KAL, holding a 12.45 percent stake in the former and 11.81 percent in the latter.
“The NPS should consider deterring the chairman's children from returning to management or make them pay for having tarnished the corporate value,” Rep. Lim Jong-seong of Democratic Party of Korea said in a radio interview.