The Korea Corporate Governance Improvement Fund, the second-largest stakeholder in the country’s flagship carrier, Korean Air, has publicly denounced the return of the late Chairman Cho Yang-ho’s younger daughter to a management role in light of the damage she has inflicted on the corporate image and the value of the company’s shares.
The KCGI, which holds a nearly 16 percent stake in the air carrier, released a statement Wednesday saying Hanjin Group’s decision to reinstate Cho Hyun-min as a senior vice president at Hanjin KAL and as executive vice president of Jungseok Enterprise violates “the principle of responsible management.”
The activist fund said it would ask the Hanjin KAL board members to explain how to deal with the stock price crash triggered by the power abuse scandal that surrounded Cho Hyun-min last year, as well as to state the amount of her salary and severance pay.
Within six months after the news came out in April 2018 of an incident where Cho reportedly lost her temper during a business meeting, shouting at people and tossing a glass of water at others, the KCGI said in a statement, “five affiliates of Hanjin Group, including Hanjin KAL, Korean Air and Jin Air, saw their market capitalizations nose-dive by 20 percent.”
The statement continued, “The damage caused by Cho’s unruly behavior directly influenced the shareholders of Hanjin Group. The damage to the group’s corporate image and its employees’ morale cannot be translated into numbers,” it added.
It also speculated that Cho’s return might be connected to her family’s inheritance tax bill, which is expected to be around 200 billion won ($169 million) and due for payment by October.
According to Korean Air, the bereaved family already received 40 billion won in May as severance pay for the late chairman, in line with company policy.
Cho Hyun-min, furthermore, has received 1.7 billion won in pay and severance pay since resigning her positions at Korean Air and Jin Air last year.
Earlier this month, the KCGI increased its stake in Hanjin KAL to 15.98 percent, from 14.98 percent in April.
This has led to the KCGI’s stake in Hanjin Group having a less than 2 percentage point gap with that of the late Chairman Cho, who was the largest shareholder with a 17.84 percent stake.
Regarding such claims, Hanjin Group refuted KCGI’s arguments in a statement released later on Tuesday.
It said that market share fluctuation has continued since last year due to external factors including rise in oil price around the world.
The group also defended Cho Hyun-min, saying that Cho was a “marketing expert” with over a decade of experience in Korean Air and Jin Air and has shown “differentiated marketing ideas and storytelling-style advertisements.”
It added that Cho would contribute to the group’s overall sales and corporate value.
Meanwhile, the employees and labor union of Hanjin Group’s low-cost carrier unit, Jin Air, demanded that the group withdraw Cho’s reinstatement and apologize to the employees.
“Cho’s return as Hanjin KAL’s senior vice president with a 60 percent share in Jin Air means that she will indirectly own Jin Air,” said the labor union in a statement.
Jin Air has been the target of ongoing sanctions since August last year by the Ministry of Land, Infrastructure and Transport, after the authorities banned the budget carrier from adding new aircraft or expanding its routes until it significantly improved its governance practices.
The budget carrier came under fire in April last year for having a US citizen, Cho Hyun-min, on its board of directors from 2010 to 2016. For security reasons, foreign nationals cannot serve as board members at Korean airlines under the nation’s aviation law.
Fierce market competition among low-cost carriers, largely led by Jeju Air and T’way, has taken a toll on Jin Air’s performance, internal stability and profitability.
By Kim Da-sol (firstname.lastname@example.org)