[INTERVIEW] Top shareholder explains his reasoning for proposal
Kumho Petrochemical’s largest shareholder is going after the board not out of self-interest but to raise the value of the company.
Park Chul-whan, who owns more than 10 percent of the synthetic rubber manufacturer and is a senior vice president, said he submitted a shareholder proposal in January because the company portfolio has remained unchanged for more than a decade, while its rival has been making active partnerships to expand business abroad.
Park’s proposal includes significantly raising the dividend and the appointment of new directors of his choosing, recommendations resisted by the board and by Chairman and CEO Park Chan-koo.
Amid the ongoing conflict ahead of a March 26 shareholder’s meeting, where the disputes are expected to settle, Park discussed some of the issues with Korea JoongAng Daily in writing and by phone.
Below are the edited excerpts.
Q.Why did you file the shareholder proposal at a time when the company reached record earnings last year?
A. Last year, we achieved record earnings because of the Covid-19. It was an unexpected opportunity for us because the pandemic has raised the demand for medical gloves. So the record earnings weren’t the result of the company’s preparations.
Before the pandemic, synthetic rubber and synthetic resins – our core products – was not profitable due to excessive supply. Because we sell general purpose products based on raw materials that we can’t make on our own, [our business] is vulnerable to external factors. [Despite the limit], our portfolio has remained the same over the past decade. During those years, we have missed out on a lot of new opportunities, which led me to think that the company lacks the momentum to launch a new business.
Since we earned enough money last year, I thought now is the time to search for new growth engines, so I submitted the proposal.
The proposal includes raising the dividend to 11,000 won ($9) per share from 1,500 won in the previous year. Don’t you think such a dramatic increase in dividend may disturb the company’s plan to launch new businesses?
The investment plans we have are not major projects that cost several trillion won. The project under development costs around 400 billion won to 500 billion won maximum. Also, the company can secure funds from the listing of subsidiaries, like Kumho P&B Chemicals and by selling treasury shares.
Offering a dividend gives a positive signal to the market. It sends the message that the company is financially stable. Kumho Petrochemical’s dividend payout ratio is far lower than other companies engaged in similar business, like LG Chem and Lotte Chemical. Our company has been very conservative, and kept the dividend payout ratio at around 15 percent, so raising it to 50 percent may sound excessive. But we need to normalize the ratio to keep up with the global standard.
What were the criteria for recommending the new board members?
Unfortunately, I think that the current board of directors fails to fulfill its role of supervising and holding the management’s decision-making in check. Even if the management makes decisions that destroy shareholder value, there currently is no organization to hold that in check, and despite repeated incidents that have posed serious risks to the company's valuation and reputation, the management has not shown any resolve to make improvements, due to the lack of supervision from the board. The current acquisition of Kumho Resort can be a representative example. There is no strategic rationale for the board’s decision to acquire Kumho Resort, a business with poor corporate structure and has no business synergy with Kumho Petrochemical.
Board members with expertise and objectivity should be able to fully hold the management in check when it makes biased decisions. The newly recommended board members have extensive professional backgrounds in management strategies, environment and digital transformation.
The Chairman’s son Park Jun-kyung was promoted as executive vice president of the company last year, while you remained a senior vice president. Did that in any way affect your effort to change the company?
My personal interests are not involved. My decisions are based on the effort to raise the corporate and shareholder value. Submitting a shareholder proposal is not an uncle-nephew matter, nor is it for any short-term purpose or gain. Rather, I am making a reasonable and legitimate proposal from the standpoint as a member and the single largest shareholder of the company, with the sole purpose of enhancing long-term corporate and shareholder value.
The proposal will be put to vote at the regular general shareholder meeting. Do you think there is a high chance of it passing?
I think stakeholders including shareholders are interested in sensible decision-making and sustainable growth more than ever before. I would like to explain the authenticity of the shareholder proposal and communicate transparently with fellow shareholders and stakeholders to earn their support.
BY JIN MIN-JI [firstname.lastname@example.org]