Kumho Resort Golf Club
- Park Chul Whan, the largest individual shareholder and a managing director, pushing to reform Kumho Petrochemical Co. Ltd.’s (ticker: 011780.KS) corporate governance and boost its value; Company is led by his uncle
- Looks to boost market value to 20 Tln won ($17.6 Bln) in 5 years, compared with current market cap of 6.7 Tln won
- Proposals include increasing dividends and withdrawal from the acquisition of resort from Kumho Asiana Group
- Chair Park Chan-Koo announced growth plan and won board approval on Tuesday to counter his nephew’s proposals
- Glass Lewis recommended holders vote for Park Chul Whan as an executive director on Board
- AGM scheduled for March 26
By Jarrett Banks and John Jannarone
The plot sounds like something out of a Korean drama.
A brother battles against brother to wrest control of a unit of the family-owned conglomerate known as a chaebol. Eleven years later, the nephew, a 42-year-old Harvard-educated executive who is the largest shareholder, demands changes to management and the board of directors, setting the stage for a battle for control with his 72-year-old uncle.
Yet this isn’t fiction. It’s the saga of the Kumho Petrochemical, one of the world’s largest makers of synthetic rubber, including latex used in medical gloves. The shareholder showdown offers investors a chance to influence change in a country that has long moved at a snail’s pace when it comes to corporate governance. A real proxy battle is taking place.
In February, Senior Vice President Park Chul Whan, largest individual shareholder and nephew of Kumho Petrochemical’s chairman, submitted a request to access the shareholder list, a common procedure in contested situations, and subsequently filed proposals to appoint five directors, including himself, to Kumho’s 10-member board. In addition, he demanded that the company increase dividends and overhaul its corporate governance.
He is also calling for the disposal of a resort that he says has no synergy with a petrochemical business. And indeed, he makes a strong argument – golf courses and synthetic rubber are about as disparate a pair of assets as anyone could imagine.
What’s more, Kumho Petrochemical and its subsidiary Kumho P&B Chemicals acquired the resort from Asiana Airlines for 255.4 billion won ($224.65 million), which the nephew claimed was at least 100 billion won higher than its rivals. He also points out that the resort’s debt-to-equity ratio is an eye-watering 400 percent.
Kumho trades at a sizeable discount to more diversified peers in part because of a questionable track record that includes buying the resort. Kumho fetches eight times expected earnings, while Japan’s Sumitomo Chemicals is valued at 12 times and LG Chem’s multiple is nearly 30 times. Neither the company nor Park Chul Whan responded to requests for comment from CorpGov.
In a major coup for the nephew, Glass Lewis recommended holders vote for Park Chul Whan as an executive director on the Kumho Petrochemical Board, noting his decade of experience serving as a senior executive at the company. “We believe CW Park could continue to advocate for the various strategic, financial and governance reforms he believes are necessary in order to enhance shareholder value going forward,” the proxy advisor said.
Even before the AGM, the nephew’s efforts have already had a major impact: Kumho Petrochemical nominated new candidates to replace five outgoing board members and proposed a dividend of 115.8 billion won for 2020, up 180 percent from a year earlier. It also wants to separate the chief executive and chairman roles and establish an ESG committee.
Proxy advisory firm ISS on March 12 recommended that Kumho Petrochemical shareholders vote in favor of all the board’s proposals, including its director nominees, over rival plans submitted by Park Chul Whan. But the nephew makes a strong case that ISS didn’t do its homework. He said in a statement the “ISS recommendation is inadequate and lacks understanding of the governance risk posed by the current management and the Board of Directors.”
After filing for an injunction with the Seoul Central District Court asking for the court to force the company to discuss his proposals at the general shareholders meeting on March 26, the nephew created a detailed website named “Go Beyond, Kumho Petrochemical.”
One of the most compelling points on the website is that management has operated without any real checks on their behavior. Such a lack of accountability is unlikely to be tolerated much longer by modern, international investors.
Chaebol make up more than half the value of the companies traded on South Korea’s stock exchange. However, their contribution to the world’s 11th- largest economy is overshadowed by repeated cases of bribery, weak corporate governance, and complicated shareholding plans that help the families accumulate wealth and inherit management.
The Asian Corporate Governance Association ranked Korea ninth out of 12 major economies for corporate governance. The rankings include quality of regulation, listed company transparency and investor rights. Perceptions of corporate governance matter more to Korea than most countries: Questionable governance is one factor that prevents the wealthy economy from being reclassified as a developed market by index provider MSCI Inc.
Korean firms return a little less than 28% of their net income to investors in the form of dividends, compared with Japan’s 38%, China’s 30% and Australia’s figure of over two-thirds.
If Korea’s Oscar winning film Parasite taught the world anything, it was that regular people aren’t going to put up with the status quo anymore. Shareholders shouldn’t either.
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