ISS urges KT&G shareholders to vote against CEO candidate Bang

Global leading proxy advisor Institutional Shareholder Services Inc. (ISS) has recommended that stakeholders of South Korean tobacco maker KT&G Corp. vote against the company’s appointment of its chief operating officer as the next chief executive, sources familiar with the matter said on Friday.

KT&G seems to have a fair and transparent procedure for CEO selection, but the procedure is unrealistic and ISS has no choice but to question it, the proxy advisor said in its disclosure.  

It is surprising that KT&G is nominating the executive who directly affected the company's business performance deterioration, ISS added. 

ISS also vetoed KT&G’s choice of two candidates for outside directors: Lim Min-kyu, the company’s current board chair and former CEO of SK Materials Co., and Kwak Sang-wook, an advisor at Seoul-based law firm Hwahyun.

The proxy advisor supported the nomination of Son Dong-hwan, a law professor at Sungkyunkwan University, as an outside director.

Son was recommended by the state-run Industrial Bank of Korea (IBK), KT&G’s top shareholder with a 6.93% stake. His nomination is also supported by Singapore-based Flashlight Capital Partners Ptd. (FCP), which has led shareholder activism against KT&G since 2022.

As KT&G has continuously suffered issues with corporate governance and business management, it is necessary to nominate outside directors recommended by shareholders to restore the investors’ trust, ISS added.

ISS’ decision aligns with IBK’s opinion as the state-run bank vetoed the appointment of Bang and Lim in its disclosure earlier this week.  

Bang would fail to be elected CEO if Korea’s National Pension Service (NPS), KT&G’s second-largest shareholder with 6.31% ownership, and foreign stakeholders with a combined 44.31% stake, accept ISS’ recommendation.

Write to Park Jong-Kwan at pjk@hankyung.com

Jihyun Kim edited this article.