Hankook Tire: The Older Sister Moved First, but the Father Supported the Younger Son

What Happened to Hankook Tire...
Second Son President Cho Hyun-beom Becomes Largest Shareholder
Emergency Meeting with Eldest Daughter Ju-jae at Year-End
Draft Included President Cho's Resignation
After Chairman's Suspension, President Cho Returns

[Asia Economy Reporters Song Hwajeong and Seong Giho] With Cho Hyun-beom, President of Korea Technology Group, suddenly inheriting the shares of Cho Yang-rae, Chairman of Korea Technology Group (formerly Hankook Tire Worldwide), the succession of management control appears to be confirmed. Although the sudden management succession came as a surprise both inside and outside the company, it has been confirmed that there had already been discord within the owner family since the end of last year. There are also forecasts that if the eldest son and two daughters, who were excluded from this succession, unite, the management dispute could intensify, similar to the Hanjin family conflict.

According to industry sources on the 30th, Chairman Cho recently sold all of his 23.59% stake in Korea Technology Group to his second son, President Cho, through a block deal (large-scale trading outside regular hours). Combining this with the shares he already held, President Cho now owns 42.9%, becoming the largest shareholder.

Until now, President Cho and his elder brother, Vice Chairman Cho Hyun-sik, held similar shares. President Cho had 19.31%, and Vice Chairman Cho had 19.32%. With no clear succession plan established, the similar shareholding between the brothers posed a risk of management disputes, but Chairman Cho’s sale of shares to his second son seems to have clarified the management structure.

This share transfer was so sudden that neither the business community nor the company’s internal staff detected it. Until now, Vice Chairman Cho managed the group holding company, while President Cho served as CEO of Hankook Tire & Technology, running the business jointly as brothers. Moreover, when President Cho resigned as CEO of Hankook Tire & Technology on the 23rd, there was speculation that Vice Chairman Cho might gain more influence.

However, it has been confirmed that discord within the owner family over management control had already existed since the end of last year. The timeline goes back to November last year. At that time, President Cho was abruptly arrested on the 21st of the same month on charges of breach of trust and embezzlement. Subsequently, in December, a family meeting presided over by eldest daughter Cho Hee-kyung, director of the Hankook Tire Sharing Foundation, was held to discuss the succession of Korea Technology Group’s management. Even family members who were abroad rushed back for this emergency meeting.

The draft statement prepared through the discussion reportedly included President Cho’s resignation, the introduction of a professional management system, and a significant strengthening of the board of directors and audit committee functions. The separation of management and ownership was also discussed but was ultimately postponed due to Chairman Cho’s objection. Later, the succession issue was delayed due to the impact of the COVID-19 pandemic, and President Cho was released on bail in March this year. Ultimately, this succession reflects Chairman Cho’s strong intentions.

Attention is now focused on Vice Chairman Cho’s response. If he allies with his sister, Cho Hee-won, who holds 10.82% of shares, and engages in a management dispute, there is a possibility of being embroiled in turmoil similar to the Hanjin family conflict. Combining Vice Chairman Cho’s 19.32% and his sister’s 10.82% results in 30.14%. Adding the 7.74% stake held by the National Pension Service, which could play a 'casting vote' role, brings the total to 37.88%. Including minority shareholders, securing a majority stake is not out of the question. Vice Chairman Cho was recently sentenced to one year in prison with a two-year probation for paying false salaries amounting to about 100 million won to his sister.

In the business community, there are predictions that if the management dispute intensifies, it could become a second Hanjin KAL. Previously, after the late Cho Yang-ho, Chairman of Hanjin Group, passed away in April last year, his eldest son Cho Won-tae succeeded the management rights. However, his sister, former Vice President Cho Hyun-ah, allied with private equity fund KCGI and Bando Construction to demand Cho’s resignation, sparking a full-scale management dispute. Although Cho Won-tae won the dispute by securing reappointment as an inside director at the regular shareholders’ meeting in March, the three-party alliance continues to increase its shares, so the conflict remains unresolved.

The trial outcome of President Cho is also crucial. He was indicted on charges of breach of trust and embezzlement and was sentenced in the first trial on April 1 to three years in prison with a four-year suspended sentence and a fine of 615 million won. According to the Act on the Aggravated Punishment of Specific Economic Crimes, executives who commit embezzlement or breach of trust exceeding 500 million won cannot return to the company. Even if the sentence is lighter, if a court-imposed detention occurs, management activities will be severely restricted. Additionally, depending on the sentence, the position of the National Pension Service, which will play a casting vote role, is expected to be clarified.