[Summary] Shareholder Activities against Chairman Cho Yang-ho, Korean Air Line
- 2019.04.12 (13:19:12)
Shareholder Activities against Chairman Cho Yang-ho, Korean Air Line
On March 27, 2019, Korean Air shareholders rejected the reappointment of Cho Yang-ho as chairman of the board of Korean Air. The shareholders decided that the head of a conglomerate had abandoned his responsibilities and had tried to retain management control even though he was on trial for charges of breach of trust and misappropriation worth 27 billion won.
Cho was on trial for charges including violating the Law on International Tax Adjustment, Pharmaceutical Affairs Act; embezzlement; breach of trust; and fraud relating to the Act on the Aggravated Punishment, Etc of Specific Economic Crimes. The charges relate to the collection of 19.6 billion won worth of brokerage fees from Korean Air suppliers, under the name of a disguised affiliate, for the purchase of aircraft equipment and in-flight tax-free goods; the payment of 1.7 billion won in fees, including the cost of legal representation for former Korean Air Vice President Cho Hyun-ah; the payment of 20.5 billion won in false salaries to three people, including his mother, by enrolling them as employees; and the appropriation of 152.2 billion won through illegal borrowed-name pharmacies.
Also pending in the Supreme Court is a case brought by the Fair Trade Commission regarding violations of the Fair Trade Act by "Cyber Sky,” which was 100 percent owned by Cho's three siblings, for the purpose of transactions with Korean Air. As such, Cho, who had been indicted on various charges of embezzlement, breach of trust and other irregularities, should rightly be deemed ineligible as a board member of Korean Air. Cho actions and removal caused huge losses to Korean Air and a plunge in its corporate value.
In response, the Center for Economic and Financial Justice at People's Solidarity for Participatory Democracy (PSPD) began shareholder activities against Cho’s second term as in-house director on March 5, 2019. On March 8, right after the announcement by Korean Air's shareholders PSPD, MINBYUN Lawyers for Democratic Society, and the lawyer Lee Sang-Hoon of the National Pension Service trustee's responsibility committee, registered with the Financial Supervisory Service as voting trustees, and conducted two weeks of activities to encourage shareholders to delegate their voting rights during the period from March 13 to just before the shareholders' meeting of Korean Air on March 27.
We appealed to foreign institutional investors to join in by sending an official letter asking them to oppose Cho's second term, and asking them to exercise their shareholder rights to this end in public pension funds such as the National Pension Service, the Teachers’ Pension fund, the Government Employees Pension fund, which respectively hold 11 million, 270,000 and 18,000 shares in Korean Air. Since then, ISS, the world's largest advisory firm on voting rights, as well as Sustinvest, and the Institute of Good Corporate Governance, have also recommended opposition to Cho's second term on the board.
In addition, on March 19, during the voting rights campaign, a press conference was held by the Korean Air Pilot's Union and the Korean Air Employees Solidarity Branch, to file a complaint against the company, claiming that employees were made to sign over power of attorney and voting rights under duress from company officials.
While activities against Cho's second term were in progress, the reaction of Korean Air shareholders at home and abroad has been intense. During the short period of about two weeks, around 140 small shareholders in various parts of the country and abroad (e.g. Mexico, Canada, and Hong Kong) delegated their voting rights, which totaled up to 5,150,907 shares (0.54%), to oppose Cho’s reappointment. This is the largest number of shareholders in the country's history of minority shareholder movements.
PSPD will continue to work on improving corporate governance, including strengthening the rights of minority shareholders, enhancing the independence and accountability of board members, and urging institutional investors to exercise their shareholder rights.