KCGI tells Hanjin to create independent board

A homegrown activist fund released a series of proposals aimed at improving Hanjin Group’s corporate governance system and dwindling profits on Monday, its first move since revealing its substantial stake in the scandal-ridden group in November last year.

Korea Corporate Governance Improvement (KCGI), now the second-largest shareholder of Hanjin Kal, the de facto holdings unit of Hanjin Group, called on the company to form an independent board consisting of outside directors.

The six-member committee will play a leading role in making decisions that could affect shareholder value.

“The board will include a director recommended by management, two figures suggested by KCGI and three outside experts, and they will deliberate on agenda items related to shareholder value in advance,” the KCGI said in a statement.

The fund also proposed Hanjin create a separate committee consisting of outside directors to be responsible for decisions concerning wages and the selection of senior executives.

Other suggestions include the suspension or cut of investments into poor-performing hotels held by Hanjin including LA Wilshire Grand Hotel, Waikiki Resort, Paradise Hotel Jeju and Wangsan Marina Resort.

“Hanjin needs to avoid the expansion of its hotel business to mitigate risks and increase corporate value in the long run since the sector is sensitive to tourism-related demand,” KCGI said. “Hanjin should also come up with ways to make its profits less vulnerable to fluctuating currency exchange rates.”

KCGI went on to raise the need to reduce the number of types of aircraft in a bid to cut costs, suggesting that the number be lowered to four to five from the current eight.

To up the ante, the activist fund will collect signatories from Hanjin’s retail investors if they agree on the suggestions.

The private equity firm disclosed in November that its Grace Holdings subsidiary now owns 9 percent of Hanjin Kal. The move made KCGI the second-largest shareholder after Chairman Cho Yang-ho’s 17.84 percent stake.

At the helm of the activist fund is Kang Sung-boo, a former chief executive officer at LK Investment Partners, a Korean asset management company. His career includes time in the research departments of local brokerage companies, such as Shinhan Investment and now-defunct KDB Daewoo Securities.

A tougher stance from the National Pension Service is adding to concerns for Hanjin’s owner family. The NPS’s fund management committee held its first meeting for the year last week and discussed the scope of its involvement in the management of the group’s holding company, Hanjin Kal, and the group’s airline, Korean Air.

As a result of the discussion, the pension operator and the Ministry of Health and Welfare drew up guidelines where the investor will be entitled to dismiss executives or directors if a company’s owner family is repeatedly involved in irregular practices.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]