Though he will retain his title and continue to control the company, the chairman of Korean Air was voted off his own board on Wednesday in what is being reported as a first for Korea Inc.
In a development that has shocked South Korea, Cho Yang-ho lost his seat after winning 64.1% of shareholders’ votes, just shy of the two-thirds majority he required to retain his seat, according to the company articles, at the annual general shareholders meeting.
As is customary in South Korea, Cho, the son of the founder of Hanjin Group, which owns Korean Air, did not attend the meeting.
The shareholders’ vote showed the new activist face of the National Pension Service, or NPS, which voted against Cho’s reappointment to the board of Korean Air. The move came only days after the NPS had voted with the controlling family of the Hyundai Motor Group, which was confronted by demands for higher dividends from activist shareholder Elliot Management.
In a country where simply voting on shares is sometimes considered “interfering in management,” the NPS has historically sided with the powerful dynasties which lead the country’s family-run conglomerates, or chaebol, such as Samsung Electronics, Hyundai Motor and Hanjin.
“The decision of the National Pension Service was regretful, as it did not consider long-term shareholder values,” the company told Asia Times via email.
The NPS reportedly joined three foreign institutional investors in voting against Cho. In the Korean Air case, the NPS appears to have taken a stance against the repeated misfeasances of his children and Cho himself.
Cho stands accused of embezzling about S$23.8 million, unfairly awarding contracts to companies controlled by family members and for using company funds to renovate his own home. His wife and children have provoked public indignation for persistently abusive and violent behavior.
The move shocked the business establishment, according to South Korea’s best-selling newspaper, the conservative Chosun Ilbo, which wrote: “Industry watchers were stunned by the development, and some grumbled that the decision was politically motivated and said the NPS should not be meddling in the private sector.”
While the vote may be a humiliation for Cho, it will not affect his control of the company. “Chairman Cho was voted off the board of Korean Air, but this does not mean that he would lose his position as chairman and CEO of Korean Air,” PR officials told Asia Times by email. The chairman is appointed by the board. “His role in management is to be further discussed based on internal policies and procedures.”
Indeed, the board is likely to champion their chairman, said a source who has been observing South Korea for decades. “He only has to make his wishes clear and the board will fall over themselves to follow them – this is loyalty to the chief,” Hank Morris, an adviser to Erudite Risk, told Asia Times.
Inside directors are particularly likely to follow Cho’s commands: A former employee of Korean Air has alleged that a 70-page manual exists on how to correctly behave around the airline’s controlling family. More broadly, outside directors have not proven to be an effective check on mismanagement or corrupt governance, Morris added.
“Outside directors are recommended by management and most of them are professors who have some connection to controlling families,” he said. “As professors are not overpaid, [directorships] provide a nice top-up income – and they know where this largesse comes from.”
It is unclear whether the NPS voted against Cho due to widespread domestic ire aimed at his family or to raise corporate value, but the move is not analogous to the recent vote in favor of Hyundai management, Morris suggested.
“If Elliot had been a little more culturally aware, they would never have gone for such an aggressive dividend demand, as Hyundai need retained earnings to work on their electric vehicle product line,” he said. “But institutional investors have not been impressed with the antics of Hanjin Group’s Cho family for a long time.”
On Thursday, the day after the AGM, Korean Air shares fell 5.27%, despite being up 2.78% the day before.
Korea Inc’s notorious dynasty
As many passengers will likely attest, Korean Air is a highly professional airline, and in a corporate message prominently posted on the Hanjin Group website, Cho wrote: “We will build the relationship with customers through trust and affection.”
However, his family has hardly lived up to this promise. In fact, even in a country where white-collar crime and abuse by chaebol “royal families” is rampant, the Chos are arguably the most scandal-prone dynasty.
In 2014, one of Cho’s daughters, Heather, apparently in a tantrum, famously ordered a KAL aircraft to turn around just before take-off in order to eject a first-class cabin crewman who had served her macadamia nuts without a silver tray, in what became known as the “nut rage” incident.
The airline allegedly tried to cover up the incident. In 2019, video of her assaulting her husband appeared online.
His other daughter, Emily, faced disgrace in 2018 for abusing and hurling a glass of water at sub-contractors during a meeting. That incident became a rallying symbol for demonstrators campaigning against gapshil – abuse of the weak by the powerful.
In the face of public fury at what was seen as entitled behavior, both daughters resigned from executive positions at the group. Cho’s wife has also been filmed abusing workers and has been accused of assaulting domestic staff.
Even so, such behavior pales beside those of Cho’s eldest son, Walter, who is widely seen as the next-generation successor to the conglomerate. A Korean Air board member and current president and COO, he has been involved in a hit-and-run accident, assaulted a police officer, and in a separate incident, allegedly abused and assaulted a senior citizen.
A source familiar with the family told Asia Times that he is notorious in its prestigious, mountainside Seoul neighborhood for repeated rages, and some believe the Cho family may be afflicted with a hereditary, anger-related disorder.