Aviation Experts and Governance Improvement... Intensifying Hanjin Management Rights Dispute

[Image source=Yonhap News]

[Asia Economy Reporter Yu Je-hoon] Ahead of the Hanjin KAL annual general meeting scheduled for the 27th, the battle of legitimacy between Hanjin Group and the three-party coalition (former Korean Air Vice President Cho Hyun-ah, KCGI, Bando Construction) is intensifying. Both sides are clashing, accusing each other of "lacking experts in the aviation and logistics industries" and stating that "there are limits to closed-door management, so corporate governance must be improved."

◆Lack of Aviation Experts Theory = Hanjin Group is actively emphasizing that the candidates for inside and outside directors proposed by the three-party coalition lack experts in the aviation industry. They argue that the shareholder proposal does not consider the highly specialized nature of the aviation industry.

In fact, the three-party coalition’s candidates, former SK Vice Chairman Kim Shin-bae and former Samsung Electronics Vice President Bae Kyung-tae, have experience only in the telecommunications and electronics industries, with little connection to Hanjin Group’s core aviation and logistics businesses. Although former T’way Air CEO Ham Cheol-ho possesses expertise in the aviation field, his status as a non-executive outside director candidate is seen as a weakness.

On the other hand, Hanjin Group has decided to nominate Ha Eun-yong, a 'financial expert' within the group and Vice President of Korean Air, as a candidate for inside director of Hanjin KAL. Vice President Ha has worked at Korean Air for over 30 years, covering finance and strategy departments.

Proxy advisory firms have also expressed skepticism about the expertise of the three-party coalition’s candidates. Korea Corporate Governance Service (KCGS), the largest proxy advisory firm in Korea, recommended opposing all candidates proposed by the coalition on the 13th of last month, stating, "While advocating for the introduction of a professional management system, it is difficult to find any circumstances that would make the expertise of the proposed candidates notably superior to those nominated by the board."

Concerns are also high within the industry. An industry insider said, "The aviation industry is one where expertise, experience, and networking, including global networking, are crucial," adding, "Some latecomers experienced initial business chaos due to the lack of such expertise and networking." The insider further pointed out, "Especially in a phase where the industry base itself is collapsing due to the COVID-19 pandemic, there is no time to hesitate."

The three-party coalition cites the example of Kazuo Inamori (?盛和夫, 88), chairman of Kyocera, who revived bankrupt Japan Airlines. They argue that for CEOs, management philosophy and leadership are more important than expertise.

◆Corporate Governance Improvement = The three-party coalition is focusing its efforts on the need to improve Hanjin Group’s corporate governance. Recently, the coalition directly raised allegations that Korean Air’s management received approximately 18 billion KRW in rebates from Airbus between 1996 and 2000 in exchange for introducing A330 aircraft, supporting their claims.

The coalition stated, "This rebate incident clearly shows why the professional management system advocated by the shareholder coalition is necessary," emphasizing, "The company can no longer survive under past authoritarian leadership and closed-door management, so Hanjin Group must be able to leap forward with a professional management system."

However, some criticize the coalition for making contradictory claims. For example, Bando Construction, a member of the coalition, is criticized for its typical family-run management system, with Chairman Kwon Hong-sa and his eldest son, Executive Director Kwon Jae-hyun, holding 99.67% of the shares in the holding company Bando Holdings.

There are also allegations that they have used a differential dividend system for irregular succession. In fact, after converting to a holding company in 2008, Bando Holdings did not pay dividends until 2015. However, in 2015, when Executive Director Kwon became the second-largest shareholder, an interim dividend of 58,000 KRW per share (par value 5,000 KRW) was paid. Furthermore, Chairman Kwon used the differential dividend system to transfer dividend rights to Executive Director Kwon, whose dividend amounted to 40.6 billion KRW. Some suggest that since the shareholders of Bando Holdings are effectively only Chairman Kwon and Executive Director Kwon, this differential dividend may have been a form of gifting.

Inside and outside the industry, it is expected that the mutual public opinion battle between the two sides will intensify until the last moment. An industry insider said, "There will not be a one-shot showdown at this shareholders’ meeting," adding, "Since both sides are preparing for a long-term battle, the dispute will continue until the end."

This content was produced with the assistance of AI translation services.