Chair Lee Sang-don, the founder and largest shareholder of KOSDAQ-listed Tomato System, after handing the CEO post to an in-house employee, has decided to donate a large portion of equity to executives and employees as well. Both inside and outside the company, people say the case is unusual, yet reactions are positive.
According to the financial investment industry on Oct. 21, Chair Lee Sang-don plans to donate and sell on the market 12.15% (431,790 shares) of his total equity holdings (3,554,700 shares) from Nov. 17 to Dec. 16. At 6,630 won per share, the total is 3 billion won.
New CEO Cho Gil-joo (156,145 shares) and all executives and employees (119,500 shares) are set to receive about 65% of the donated equity. Of the remainder, 78,073 shares (18%) will go to Lee's wife, and the rest, worth 500 million won, will be sold on the market.
Generally, in small and midsize companies, founders step to the forefront as the largest shareholder and CEO, and control and equity succession often proceed with the family at the center.
However, the Tomato System founder gave management control not to family but to a founding member and colleague who managed the company together for a long time, and voluntarily stepped down to chair of the board, saying he would focus on finding new businesses. In addition, in an unusual move, he decided to share part of the equity with executives and employees as performance compensation.
IT solution specialist Tomato System was founded in 2000. Chair Lee, who had been Head of Team of LG CNS's public projects division, founded the company together with CEO Cho Gil-joo, who at the time was an assistant manager. The company's main business is research, development, and supply of UI/UX solution development platforms, and it is known as the No. 1 domestic operator in university enterprise resource planning (ERP) systems. It entered the KOSDAQ market in 2023.
In July this year, Chair Lee Sang-don handed the CEO post to Cho Gil-joo, who had been a vice president. Lee said, "I have long thought that management control should be given not to one's children but to capable company employees."
Lee gave about 40% of the donated equity to CEO Cho to solidify management control through a larger equity stake and to establish a responsible management system. Lee said, "CEO Cho Gil-joo has been a business partner for more than 30 years, and there was a need to further increase his current equity ratio." Cho's equity ratio will rise to 5.23% from 4.29% after the donation is completed.
In addition, to express gratitude for the company's growth and to foster a sense of ownership, the donated shares will also go to all more than 200 executives and employees. Lee emphasized, "The company's growth so far is entirely thanks to the employees," and said, "It means sharing the results and, going forward, working together to raise the stock price." Tomato System plans to explain the donation and its intent to employees at the 25th anniversary ceremony to be held on Oct. 24.
He added that the on-market sale volume will be limited to the minimum necessary to repay personal loans, and that measures were taken in parallel to avoid any problem in maintaining management control.
Tomato System plans to focus on recovering earnings, using this equity donation as a pivot. The company posted revenue of 26.6 billion won and operating profit of 2.8 billion won in 2023, but it turned to an operating loss last year and has been underperforming. Due to cuts in government public budgets and schedule delays, it also posted an operating loss of 1.6 billion won in the first half of this year. The share price climbed to 8,880 won at the end of April this year, then fell nearly 30% and has been moving sideways in the 6,000-won range since last month.
To that end, the company is pursuing automation of development processes with a next-generation solution incorporating generative artificial intelligence (AI) technology. At the end of September, it signed a contract worth 6.9 billion won with Wonkwang University to build a next-generation integrated information system.
Chair Lee Sang-don, who decided to oversee overseas business, also plans to ramp up the "CyberMDCare" remote medical consultation platform business, centered on the United States, starting next year. Lee is steadily consulting with CEO Cho as they push the business forward. He said, "We expect the healthcare business to contribute significantly to earnings starting next year, and we are hiring a large number of people to expand the business."