'Management Dispute' Similar Shareholders' Meetings of Hankook Tire and Kumho Petrochemical Featuring 'Shareholder Proposals'

[Asia Economy Reporter Ki-min Lee] Shareholder proposals are emerging as a new weapon in family business disputes over management control. Even when trailing in shareholding ratios, they can submit their recommended outside directors and audit committee members as agenda items at the shareholders' meeting.

According to the industry on the 28th, Hankook & Company (the holding company of Hankook Tire & Technology) and Hankook Tire & Technology will each hold their shareholders' meetings on the 30th of next month. At the Hankook & Company shareholders' meeting, the appointment of Professor Han-sang Lee of Korea University as an outside director and audit committee member, proposed by CEO Hyun-sik Cho of Hankook & Company, will be put to a vote. Similarly, at Hankook Tire & Technology, the appointment of Hye-woong Lee, CEO of BRB Korea Advisors, as an outside director and audit committee member, requested through a shareholder proposal by Hee-kyung Cho, Chairperson of the Hankook Tire Nanum Foundation, will also be decided at the shareholders' meeting.

The Hankook & Company Group is embroiled in a management dispute after Chairman Yang-rae Cho designated his second son, President Hyun-beom Cho, as his successor by transferring 23.59% of the group shares he held. The daughter, Hee-kyung Cho, questioned the father's decision and filed a petition for limited guardianship at the Seoul Family Court. CEO Cho is participating in the trial as an interested party, siding with Chairperson Hee-kyung Cho.

In the case of the Kumho Petrochemical management dispute, known as the "nephew's rebellion," Executive Director Chan-gu Park's nephew, Executive Director Park, submitted a shareholder proposal last month including his nomination as an inside director, recommendations for outside directors and audit committee members, and dividend expansion. Currently, Executive Director Park holds a 10.00% stake in Kumho Petrochemical, making him the largest shareholder. However, when combining Chairman Park's 6.69%, Executive Director Jun-kyung Park's 7.17%, and Executive Director Joo-hyung Park's 0.98% stakes, the total is 14.84%, which is 4.84 percentage points higher than Executive Director Park's stake.

Park Cheol-wan, Executive Director at Kumho Petrochemical

The eldest son and daughter, who opposed Chairman Yang-rae Cho's designation of a successor, and uncle Chan-gu Park made shareholder proposals for the appointment of outside directors and audit committee members. A shareholder proposal means that shareholders holding 3% of the total issued shares, excluding non-voting shares, can propose certain matters as agenda items for the shareholders' meeting. Following the revision of the Commercial Act at the end of last year, the six-month shareholding requirement for shareholder proposals was removed. Additionally, when electing audit committee members who also serve as outside directors, the 3% voting rights restriction applies individually without aggregating the shares of the largest shareholder and related parties.

Contrary to the original legislative intent that shareholder proposals and the 3% rule serve to check the largest shareholders holding management rights and promote transparency in corporate governance, they appear to be used as tools in family management disputes. Some in the industry speculate that CEO Cho and Executive Director Park, whose shareholding ratios are declining, made shareholder proposals to exert certain influence within the board of directors.

Another commonality is that CEO Cho and Executive Director Park proceeded with these shareholder proposals through legal representatives. Law firm KL Partners has been appointed as legal counsel for both CEO Cho and Executive Director Park to prepare for the shareholders' meetings. Particularly, regarding CEO Cho, who is the company's vice chairman and chairman of the board, the fact that he appointed legal counsel to respond to this shareholders' meeting has raised questions both inside and outside Hankook & Company.

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