Cho Hyun-bum, chair of Hankook & Company, who is detained on embezzlement and breach of trust charges totaling around 20 billion won, will step down from the board as an inside director. The move is meant to prevent conflict with his older brother, former Hankook & Company adviser Cho Hyun-sik, from burdening the board.
On the 20th, Hankook & Company said Cho would resign as CEO for personal reasons. He will remain group chair. As a result, President and CEO Park Jong-ho will lead Hankook & Company alone.
Cho's abrupt resignation, despite continuing to manage from prison after being detained in May last year, was influenced by his dispute with the former adviser. In the first trial in May last year, Cho was sentenced to three years in prison, and in the second trial in December the same year, his sentence was reduced to two years, and he remains in custody.
When Cho's legal risk surfaced in May last year, the former adviser filed a lawsuit to nullify a general meeting resolution against the company. He took issue with the fact that, at Hankook & Company's regular shareholders meeting last year, a proposal to set the directors' compensation cap at 7 billion won, the same as the year before, passed with 67.9% of the shares present voting in favor.
The former adviser argued that, under the Commercial Act, "a person with a special interest in a general meeting resolution cannot exercise voting rights," and therefore the resolution approving the compensation cap should be canceled. Cho is an inside director of Hankook & Company and the largest shareholder with 42.03% equity, and despite the restriction on exercising voting rights, he exercised his voting rights to pass the proposal, he said. The former adviser recently won this lawsuit.
The problem is that the former adviser's offensive could affect the entire board, beyond Cho personally. If the compensation cap is not approved, it becomes difficult to pay other directors on the board.
In addition, signs that the Hankook & Company Shareholders' Alliance is poised to step up shareholder activism are another reason Cho decided to resign. The alliance recently said that, following the ruling canceling the compensation resolution, there is a consensus that the board's operations and overall governance should be reviewed, and that it would strengthen oversight of the board.
In particular, the shareholders' alliance said the former adviser expressed agreement with its position. The alliance also filed a shareholders' derivative suit arguing that Cho received a large sum in compensation during his detention and that Cho should compensate the company about 5 billion won.
Hankook & Company said, "Cho decided to resign as an inside director to avoid imposing an unnecessary burden on a company run by the board," adding, "Recently, a family matter has escalated into a board operations issue, damaging the board's independence and integrity."
It added, "Cho decided to resign from the board to prevent the entire company from being drawn into a war of attrition over procedural controversy and to allow management and the board to focus on core decision-making and business execution," stressing, "Even if he resigns as a director, he plans to continue, without change, his deliberations and role in ensuring the company's sustained growth and strengthening its future competitiveness."