[Deputy Director Column] The Justification of KCGI and Cho Hyun-ah

[Asia Economy Reporter Lim Jeong-su] KCGI (KCGI), a native activist private equity fund management company. It started with the ambition to improve the backward corporate governance of domestic companies through shareholder rights and to establish shareholder-oriented management in Korea. Within one month of its establishment, it raised a fund of 160 billion KRW, quickly grew in size, and declared its participation in the management of the Hanjin Group (Hanjin KAL, Hanjin), sending chills through the business community. It has now grown to become the largest single shareholder of Hanjin KAL, increasing its presence significantly.

KCGI has instilled the perception that it is 'different from other private equity fund management companies.' Typically, private equity funds have been viewed negatively as entities that acquire companies cheaply and then engage in ruthless restructuring to increase company value, serving only their own interests. Amid this, KCGI declared that it would block the owner's family's abuse of power and emperor-style management, and improve corporate governance to enhance shareholder rights, being regarded as a vanguard of 'shareholder democracy.'

The shareholder proposal released by KCGI after acquiring shares in Hanjin KAL clearly reflects their justification. The title is 'Hanjin Returning to the People.' As the background for the shareholder proposal, it states, "Hanjin Group, which has the potential to grow into a world-class global aviation and logistics specialist group representing the Republic of Korea, is very undervalued due to backward corporate governance characterized by various abuses of power and embezzlement and breach of trust by the major shareholder family, an excessive debt ratio due to irrational support for affiliates, and the holding of unnecessary idle assets and lax management," and "To improve this, we will participate in the management of Hanjin KAL."

Yesterday, reports emerged that KCGI, Cho Hyun-ah, and the Bando Group met twice at a location in Seoul. Although specific details of the discussions were not disclosed, many view the possibility of a tripartite alliance in the Hanjin Group management dispute. If such an alliance materializes, Cho Hyun-ah’s side would secure a significant shareholding that could threaten Cho Won-tae, chairman of the Hanjin Group. For former Vice President Cho, who is in an 'All or Nothing' management dispute, and for KCGI, which must pay high-interest loan costs to savings banks to maintain its shareholding, a tripartite alliance is not a bad practical choice.

However, former Vice President Cho inherited shares and assets as benefits of backward governance and is known as a symbol of abuse of power, exemplified by the 'nut rage' incident. If KCGI allies with former Vice President Cho, many questions will arise about the sincerity of the justification they initially presented. It will be quite interesting to see what response KCGI will provide to these questions.

This content was produced with the assistance of AI translation services.