Abuse of Power, Military Service Corruption, Defamatory Posts, False Advertising... The Self-Destruction of Namyang Dairy Products

Companies Should Take Owner Family Risks as a Cautionary Tale for Collapse

Hong Won-sik, chairman of Namyang Dairy Products, is greeting ahead of a public apology press conference regarding the 'Bulgaris incident' at Namyang Dairy Products headquarters in Gangnam-gu, Seoul, on the 4th. Last month, Namyang Dairy Products announced at a symposium on 'Development of antiviral foods in the COVID-19 era' that the Bulgaris product reduced COVID-19 by 77.8%. However, the research results were revealed to have exaggerated the findings from animal 'cell-level' experiments, causing controversy. In response, Hong Won-sik, chairman of Namyang Dairy Products, announced his intention to resign at the public apology press conference on the same day. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Lim Hye-sun] Namyang Dairy Products, the second-largest dairy company in South Korea, is changing ownership for the first time in 57 years since its founding in 1964. Although the unprecedented conclusion of the company’s sale was triggered by the controversy over false claims in the ‘Bulgaris COVID-19 Effect Marketing,’ the underlying cause is largely attributed to the continuous incidents and scandals involving the owner family, sounding an alarm in the business community.

On the 27th, the Namyang Dairy Products owner family, including former chairman and largest shareholder Hong Won-sik, sold all their shares (378,938 shares) to the private equity fund Hahn & Company. The total deal amounts to 310.7 billion KRW. This occurred 45 days after the symposium on ‘Development of Antiviral Foods in the COVID Era’ held on the 13th of last month, which sparked the controversy.

The resignation of former chairman Hong and his family is significant as it puts a stop to the practice where the head of a conglomerate controlled the company arbitrarily while employees and shareholders had to bear the ‘owner risk.’ Namyang Dairy Products suffered greatly from the continuous scandals involving the Hong family. After becoming CEO, Hong was arrested on charges of receiving rebates from a construction company. Subsequently, he stepped down as CEO but took the chairman position to continue controlling the company. He was also indicted without detention for military service evasion after paying a broker 15 million KRW to exempt his son, Hong Jin-seok, from military enlistment. Additionally, he faced police investigation for spreading defamatory posts online against competitors. Huang Hana, the granddaughter of Namyang’s founder Hong Doo-young, was arrested on drug charges, and Hong’s eldest son, executive director Hong Jin-sung, caused controversy over allegations of embezzling company funds through luxury car rentals.

Following the ‘agency bullying’ scandal in 2013, where products were forcibly sold to dealerships, a boycott against Namyang Dairy Products ensued. Over eight years, the boycott led to a 30.5% decrease in sales, from 1.365 trillion KRW in 2012 before the agency bullying issue to 948.9 billion KRW last year. Furthermore, the announcement of research claiming that Bulgaris suppresses the COVID-19 virus sparked public outrage. Although former chairman Hong issued a public apology, the public’s response remained cold. Many evaluate that the owner family’s repeated neglect of social responsibility led to their self-destruction. Since its establishment, Namyang Dairy Products has focused on infant formula and played a leading role in the domestic formula market, earning a strong image of trust among mothers. However, due to the owner family’s tyranny and bullying, Namyang is now in a precarious state. The downfall of Namyang Dairy Products is a clear example of how unchecked autocratic decisions and wrongful actions by a conglomerate head can severely damage corporate value.

A business community official said, "This incident serves as a lesson that society will not tolerate anyone who diminishes corporate value," adding, "Companies should take Namyang Dairy Products’ case as a cautionary tale."