[Initial Insight] Hanssem at a Crossroads of Change

[Asia Economy Reporter Kim Jong-hwa] On the 14th, news emerged that Cho Chang-geol (82), the founder and largest shareholder of Hanssem, the No. 1 furniture and interior company in Korea, signed a memorandum of understanding (MOU) to sell 30.21% of his shares, including those held by special related parties, to the private equity firm IM Private Equity (IMM PE). On the same day, Hanssem's stock price on the KOSPI market closed at 146,500 KRW, soaring 25% compared to the previous day.

When industry insiders were asked about the reason for the sharp rise in stock price, they cited the Namyang Dairy case. Despite boycotts triggered by franchise store bullying and false advertising about COVID-19 virus reduction effects, the resignation of Chairman Hong Won-sik resolved owner-related risks and raised expectations for management reform, which pushed the stock price up.

Similarly, with the entry of a private equity fund into Hanssem, it is expected that the irrational organizational culture will improve and management efficiency will be strengthened, which the stock market interprets as a positive factor.

Looking back at major incidents at Hanssem over the past few years, this market reaction is understandable. In 2017, a boycott movement broke out after a female employee exposed an internal sexual assault case that the company tried to cover up. In 2018, Hanssem was investigated by the Fair Trade Commission for allegations of bullying franchise stores. Earlier this year, police investigations were conducted over suspicions of slush funds and improper solicitations.

The current sale process is also not smooth. The day after reports of the share sale surfaced, the Hanssem Manufacturing Headquarters Labor Union issued a statement opposing the sale, saying, "For 50 years, through hard and happy times, we have been a family and Hanssem is one member, but we condemn the management for handling this decision without anyone knowing."

The reason for opposition is that the company did not consult or compensate employees who contributed to the company's growth. For example, this year, Hanssem restructured its Key Performance Indicators (KPI), and even employees who received the highest rating in personnel evaluations had their salary increase rates lowered.

While outwardly promoting that sales surpassed 2 trillion KRW in 2020, the company is stingy in rewarding the employees who achieved these results. No matter how much the decision was made due to dissatisfaction with succession of management rights or a desire to focus on social contribution activities, it is difficult to view the management favorably.

Nowadays, through the internet and social media, organizational culture and internal situations of specific companies are actively shared and rated without mercy. Industry insiders describe the coercive, performance-driven atmosphere as an "irrational organizational culture." Frequent internal corruption and self-deprecating nicknames left by current and former employees on the corporate information platform "Job Planet," such as "Bbaksem" or "Bamsaem," indicate that the corporate image is far from positive.

Kang Seung-soo, CEO and Chairman of Hanssem, announced in last year's 50th anniversary speech, "We plan to achieve annual sales of 10 trillion KRW by 2027 centered on smart homes and become one of the top 10 global companies in the long term." Although the "global" vision was advocated since the 1990s when Honorary Chairman Cho was at the helm, the cumulative losses of the Chinese and Japanese subsidiaries amount to about 100 billion KRW, showing there is still a long way to go.

As the leading company, the industry and consumers are closely watching and have high expectations for change. Various attempts will be made at this turning point in management, but establishing a rational compensation system and innovating organizational culture to create a workplace where employees enjoy working may be the path to getting one step closer to realizing this grand vision.