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Governance

Korea's largest tiremaker mired in family feud over management control

By Aug 25, 2020 (Gmt+09:00)

3 Min read

South Korea’s largest tire manufacturer Hankook Tire & Technology Co. is in the crosshairs as the family feud over management control of the group continues to escalate.

The family-controlled group’s vice-chairman Cho Hyun-sik announced that he supports his older sister Cho Hee-kyung's request for adult guardianship of their father and group chairman Cho Yang-rai, according to an official statement released August 25.

The succession dispute first came to light in June when the Hankook Tire patriarch transferred a 23.59% stake worth 244.6 billion won ($206 million) in a block deal to his second son Cho Hyun-bum, the group’s president and chief operating officer. The deal pushed Hyun-bum to become the group’s biggest shareholder with a 42.90% stake -- and technically the group’s heir.

hankook tire
Cho Hyun-sik (left) and Cho Hyun-bum


 

This did not sit well with Chairman Cho’s elder daughter Hee-kyung, the chairman of Hankook Tire Welfare Foundation, who filed a request for adult guardianship to the Seoul Family Court less than a week after the stake deal in June. Hee-kyung stated the need to examine whether or not Chairman Cho’s decision to transfer his shares to Hyun-bum was made voluntarily, in sound mind.

In July, Chairman Cho hit back at Hee-kyung by releasing a statement that addressed concerns over his health.

“I enjoy golfing every week with friends and I walk four to five kilometers a day. I don’t understand why my own loving daughter would do this,” Chairman Cho said, adding, “I’ve put Hyun-bum in charge of management for about 15 years and he has done well, contributing greatly to the company’s growth.”

Chairman Cho also stated in the release that his decision to make Hyun-bum the successor of the group had been clear for some time.

Amid the family storm, Hyun-sik has stepped in to take his sister’s side.

“There are questions raised regarding Chairman Cho’s health as well as concerns about the group’s future,” said Hyun-sik in the statement. “Chairman Cho’s health should be evaluated objectively and accurately, based on expert opinions within legal confines, in the interest of not only himself, but for the group, shareholders, as well as executives and employees,” he said.

Hyun-sik holds a 19.32% stake, and his two sisters Hee-kyung and Hee-won account for 0.83% and 10.82%, respectively. The three sibling’s combined stake totals 30.97%, which is far less than Hyun-bum’s stake.

The three siblings may be able to put up a fight, however, if the National Pension Service (NPS) sides with them. The Korean pension service holds a 6.24% stake in the group, the largest shareholder outside the Cho family.

Meanwhile, in April of this year, Hyun-bum was indicted on charges of embezzlement and malpractice for receiving kickbacks worth 610 million won from subcontractors and for embezzling 260 million won from affiliate companies.

The Seoul Central District Court sentenced him to three years in prison, four years of probation and 615 million won in fines. His appeal trial will take place on September 9.

This may weaken Hyun-bum's position given the NPS's adoption of the Stewardship Code, which aims to improve corporate governance through the exercise of institutional investors' voting rights. Hyun-bum's siblings could argue that he is morally unfit to manage the group.

Hankook Tire posted an operating profit of 70.1 billion won and 1.36 trillion won in revenue during the second quarter of this year. It currently has a market cap of 3.9 trillion won.

Write to Il-Gyu Kim and Chang Jae Yoo at Black0419@hankyung.com


 

Danbee Lee edited this article

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