Daewon Pharmaceutical succeeded in winning reelection of Chair Baek Seung-ho and Vice Chair Baek Seung-yeol as inside directors at this year's shareholders meeting despite opposition and abstentions from 1 in 5 shareholders. It marked a victory in a showdown with some institutional investors worried about the Oner family seizing control of the board.
Since its founding in 1958, Daewon Pharmaceutical last year for the first time posted 600 billion won in revenue. But with operating profit down in the first quarter of this year and the price of its pain reliever Pelubi tablets cut, the company faces the task of maintaining profitability.
◇ Baek Seung-ho, Baek Seung-yeol, and Baek In-hwan elected to the board… 20% opposition and abstentions
According to the corporate governance report Daewon Pharmaceutical disclosed on the 1st, the company put forward a proposal at the March shareholders meeting to reelect Chair Baek Seung-ho and Vice Chair Baek Seung-yeol as inside directors for three-year terms. Under the company's articles of incorporation, directors are elected by a majority of the voting rights of shareholders present. This requires at least one-fourth of the total number of issued shares.
The proposals to elect Chair Baek Seung-ho and Vice Chair Baek Seung-yeol as directors passed with 79% and 79.2% in favor, respectively. Notably, 21% and 20.8% of shareholders opposed or abstained from the reelection of Baek Seung-ho and Baek Seung-yeol as inside directors. That contrasts with 99.8% shareholder support for a proposal to elect one outside director.
At the March shareholders meeting last year, Daewon Pharmaceutical also put forward a proposal to reelect President Baek In-hwan as an inside director for a three-year term. Likewise, the proposal passed despite 20.8% opposition and abstentions from shareholders. Chair Baek Seung-ho is the eldest son and Vice Chair Baek Seung-yeol is the second son of the late founding chair Baek Bu-hyeon. President Baek In-hwan is Chair Baek Seung-ho's eldest son.
◇ Investors worry about the board's independence
Some say institutional investors may be concerned about the independence of Daewon Pharmaceutical's board. A Daewon Pharmaceutical official said, "We understand that some foreign institutional investors opposed the appointments in line with strict standards for appointing related parties," adding, "It is hard to view it as opposition to the candidates' management capabilities, and we plan to strengthen board independence."
Daewon Pharmaceutical's board currently consists of three inside directors and three outside directors. The inside directors—Chair Baek Seung-ho, Vice Chair Baek Seung-yeol, and President Baek In-hwan—are all members of the Oner family. The outside directors are Lee Dong-hee, vice chair of the Korea Pharmaceutical Traders Association, attorney Cho Ju-yeon of Sejong, and Jang Seong-wan, executive director at Gwanggyo Accounting Corporation.
Some also argue that, with half the board composed of the Oner family, the outside directors' check-and-balance function has been neutralized. From February last year through the first quarter of this year, Daewon Pharmaceutical's records show that outside directors did not voice opposition on major board resolutions.
◇ With Pelubi tablet price cuts… task is to maintain profitability
Daewon Pharmaceutical is known for its cold medicine Coldaewon and the anti-inflammatory analgesic Pelubi. In the first quarter this year, Daewon Pharmaceutical's consolidation revenue was 158.1 billion won, with operating profit of 4.4 billion won. Revenue rose 0.1% from a year earlier, but operating profit fell 53%. The company said the decline reflected fewer respiratory disease patients and expenses incurred during marketing of health functional foods.
To make matters worse, the company recently cut the price of Pelubi, a strong sales driver. Pelubi was approved in 2007 by the Ministery of Food and Drug Safety as a domestically developed new drug. The Ministry of Health and Welfare ordered a price cut in 2021 ahead of the launch of Pelubi generics, and Daewon Pharmaceutical held out through litigation until losing a final Supreme Court ruling in April.
Last month, the company lowered the price of Pelubi tablets from 180 won to 96 won, nearly in half. A Daewon Pharmaceutical official said, "In response to the price cut, we will diversify our portfolio and improve profitability."