Despite public apathy and tougher shareholder censure, South Korea’s chaebol groups are preparing a generational shift in leadership. The Korea Herald looks at different conglomerates and succession scenarios. -- Ed.
Hankook Tire & Technology President Cho Hyun-bum (Hankook Tire)
Hankook Technology Group, formerly known as Hankook Tire, was founded in 1941 and was South Korea’s largest and the world’s sixth-largest tire manufacturer by revenue as of 2019.
The group operates major units including Hankook Tire & Technology, Hankook Atlasbx, Hankook Networks and Hankook Car & Life.
On June 30, group Chairman Cho Yang-rai caught the eye of industry watchers as he sold all of his 23.59 percent stake in Hankook Technology Group -- a holding firm of the Hankook Tire & Technology group -- to his second son Hyun-bum.
After Chairman Cho Yang-rai stepped down from management early last year, the holding firm has been run by his first son Hyun-sik and flagship unit Hankook Tire & Technology has been led by the second son Hyun-bum.
Cho Hyun-bum is thought to have funded the stake purchase with about 300 billion won ($250 million) in loans with his stake as collateral. The deal increased Hyun-bum’s stake from 19.31 percent to 42.9 percent, more than double the 19.32 percent stake held by his older brother Hyun-sik.
It is unknown why the father sold all of his stake to his second son, who is a son-in-law of former president Lee Myung-bak.
The move raised eyebrows as Hyun-bum is yet to show notable performance yet, while Hyun-sik holds the title of vice chairman.
Currently, Hyun-sik has a 19.32 percent stake, eldest daughter Hee-kyung has 0.83 percent and second daughter Hee-won has 10.82 percent.
When added together, their combined stake is still smaller than Hyun-bum’s. Also, Hee-won recently expressed her willingness to remain neutral.
“Given the Cho family tradition, it will be difficult for his daughters to go against his father’s decision,” an industry source said.
The company has also played down market speculation of potential family feud, saying the two brothers plan to maintain the current system of management.
Family tension aside, both sons of the chairman have been mired in legal troubles -- charges of breach of trust and embezzlement.
Hyun-bum had received his first sentencing of three years in prison, suspended for four years, and a fine of 615 million won in April this year for receiving kickbacks from partner firms.
The prosecution has since appealed, and on Friday, seeking four years in prison without suspension along with the 615 million fine.
Cho was convicted of receiving 615 million won in bribes from a partner company and an affiliate in return for trade between 2008 and 2018, and of embezzling about 260 million won from an affiliate between 2008 and 2017.
First son Hyun-sik, was also convicted of embezzlement in a separate case, and a prosecutor’s appeal on his case is being pursued. The next hearing is scheduled for September.
Both sons have admitted to all charges against them. Last month, Hyun-bum, who had joined the company in 1998, resigned from his post as chief executive officer of Hankook Tire & Technology as an apparent gesture of apology. He remains the firm’s president.
“I deeply apologize for having acted upon foolish greed and complacency,” he was quoted as saying in his statement on Friday, requesting that he be given chance to redeem himself in management. His legal representative has also noted that the counterparties, who have been repaid, did not seek punishment against Cho Hyun-bum’s and that his actions did not damage his company.
His appeal trial is set for Sept. 9, 4 p.m.
While executives face restrictions in company management after convictions for embezzlement or breach of trust by law, the trial result may also affect the position of the National Pension Service.
The NPS holds a 7.74 percent stake of the holding firm and a 9.23 percent stake of Hankook Tire & Technology. It is the second-largest shareholder of the group, not counting the family.
It remains to be seen whether the NPS will maximize its voting rights, which may consequently influence the positions of other institutional investors and minority shareholders.
In 2018, Hankook failed to change its articles of association related to preferred shares due to opposition from the NPS and some overseas investors
As the global competition intensifies, its flagship unit Hankook Tire & Technology posted an operating profit of 542.9 billion won, down 22.7 percent year-on-year. This year is expected be tougher, as reduced demand for travel leads to sluggish sales of replacement tires in the aftermath of the pandemic, industry watchers said.
By Shin Ji-hye (shinjh@heraldcorp.com)