Major Shareholder Confronts Company! This South Korean Plastics Giant Faces Management Crisis

On October 2nd, specialized observations found that South Korea's chemical industry giant Kumho Petrochemical is deeply mired in a management rights dispute.The incident originated from Kumho Petrochemical's plan to issue exchangeable bonds using its own shares as collateral.Park Chul-wan, the largest individual shareholder and former managing director of the company, made a strong statement on the 30th, asserting that if the company proceeds with this plan, he will take strong countermeasures. Park Chul-wan pointed out that issuing EB with self-owned shares as collateral is actually an act that harms the value of shareholders' stocks and strengthens the control of major shareholders. During a critical period of management rights dispute, this approach is not only illegal but also a selfish attempt by the current management to protect their own interests. He also stated that he would take civil and criminal measures allowed by law, together with ordinary shareholders, against the board members who support the plan.

Kumho Petrochemical currently holds approximately3.5 million shares of treasury stock, accounting for 14% of the total issued shares. Normally, treasury shares do not have voting rights, but once transferred to external parties in the form of EB, the voting rights are "revived." This makes EB issuance both a means of raising funds and potentially a tool for defending management rights. At last year's shareholders' meeting, Park Jeong-wan and the activist fund Cha Partners Asset Management requested the full cancellation of the treasury shares, but the company only agreed to cancel half, with the remainder to be used as investment funds.

Source of the image: Korean media

Amendments to Commercial Law: External Factors Intensifying Disputes

Park Je-wan once again plays the card of management rights controversy, which is closely related to the revision of commercial law. With the implementation of the second revision of the commercial law, starting next year, the cumulative voting system will become a mandatory requirement, and the scope of separate elections for audit committee members will also be expanded. This change significantly increases the likelihood of small shareholders or non-executive candidates entering the board of directors. According to estimates, Park Je-wan holds...11.49% of the shares, if voted collectively, have the potential to secure a board seat. Additionally, the introduction of electronic voting makes it easier to gather the voting intentions of small shareholders.

Park Cheol-wan clearly stated:"The dispute over management rights has not yet ended," he emphasized, stating that he will seek to enter the board of directors through additional share purchases, and by utilizing a concentrated voting system and electronic voting system. This is undoubtedly a declaration to the public that he will continue the battle for management rights at next year's shareholders' meeting.

Park Jeol-wan: The Battle for Management RightsKey figure

Park Cheol-wan has a special status. He is the eldest son of the late former chairman of the Kumho Group, Park Jeong-gu, and the nephew of the current chairman, Park Chan-gu.In 2021, he confronted Chairman Park Chan-kyu directly, citing demands for increased dividends and the appointment of directors, which led to a management rights controversy known as the "Nephew Revolt." Despite repeatedly losing in the voting disputes at the shareholder meetings at that time, he steadfastly advocated for strengthening the rights of minority shareholders.

Kumho Petrochemical: Proceed with Caution, Future Uncertain

In the face of this turmoil, Kumho Petrochemical...The company is cautious about issuing exchangeable bonds (EB). A company representative stated, "Last year, we decided to cancel half of our treasury shares, and we are considering using the rest for investment. Issuing exchangeable bonds is just one option and has not been finalized." However, industry insiders generally believe that with the progress of commercial law revisions, management disputes similar to the one at Kumho Petrochemical may erupt again in various places. Discussions on the concentration of voting rights, separate election of audit committee members, and the mandatory cancellation of treasury shares are intertwined, and traditional defense mechanisms for management rights may face ineffectiveness. The Kumho Petrochemical case is likely to be the first test ground where institutional changes directly trigger management rights conflicts.

The dispute over the management rights of Kumho Petrochemical is not just an internal power struggle within the company, but also an inevitable outcome of changes in South Korea's corporate governance structure and legal system. The revision of commercial law aims to enhance the rights of minority shareholders and promote the democratization and transparency of corporate governance. However, it may also trigger anxiety and resistance among the management. Finding a balance between safeguarding the rights of minority shareholders and maintaining stable corporate operations has become a significant challenge for South Korean companies.

For Kumho Petrochemical, this battle for managerial control will have a profound impact on the company, regardless of the outcome. If Park Chul successfully enters the board of directors, it may lead to significant changes in the corporate governance structure; if the current management successfully fends off the challenge, they will need to consider how to better communicate and cooperate with minority shareholders to prevent similar disputes from happening again.

The management rights dispute of Korean petrochemical giant Kumho Petrochemical has sounded the alarm for corporate governance and legal system reform. Against the backdrop of continuous improvement in the system, companies need to pay more attention to the standardization and transparency of internal governance to address various potential challenges. Meanwhile, the government and regulatory agencies should also closely monitor corporate dynamics and promptly introduce relevant policies to guide enterprises towards healthy and stable development.