[ESG Symposium] "Governance is the Foundation of ESG and the Key to Solving Korea Discount"

2021 Asia ESG Symposium
Jonghoon Kim, Chairman of SK Innovation Board
Main Reason for Global Market Undervaluation
Reflecting Concerns Over Governance Independence
Strengthening Roles and Authority of SK Innovation Board
Proclamation of Corporate Governance Charter
Introducing Cases of Governance Improvement Experience

Kim Jong-hoon, Chairman of the Board of SK Innovation, is delivering a keynote speech on the topic "In the ESG Era, How Should We Respond?" at the '2021 Asia ESG Symposium' held on the 29th at the Westin Chosun Hotel in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Choi Dae-yeol] It has been pointed out that the reason Korean companies do not receive proper evaluation in the global market is largely due to governance, which scores lower than that of advanced countries' companies.

On the 29th, Kim Jong-hoon, Chairman of the Board of SK Innovation, said at the '2021 Asia ESG Symposium' hosted by Asia Economy, "Governance is the foundation and the most important core of ESG," adding, "The discount on Korean companies reflects concerns about the independence of governance."

Governance can be narrowly seen as the issue of how to divide authority among the general shareholders' meeting, the board of directors, and management, but broadly it encompasses the coordination of relationships among various stakeholders surrounding the company, including members and local communities. Comparing the price-to-book ratios (PBR) of countries competing with us on the international stage, South Korea's ratio is about 0.9 (as of 2019), lagging behind the United States (3.2), India (2.7), and Taiwan (1.9), as well as being more than 40% lower than the average (1.7). This means that the intrinsic value of companies is not being fully recognized.

The SK Innovation board, which Chairman Kim participates in, has expanded the roles and authority of the board to enable practical board-centered management, including CEO evaluation, compensation, succession, and compliance monitoring. SK Innovation is a leading affiliate in the SK Group, serving as a mid-level holding company, with subsidiaries including SK Energy, the largest oil refining company in Korea, SK Geocentric (chemicals), SK Lubricants (lubricants), and SK IE Technology (materials). After separating into a holding company and operating companies in 2007, it established the current independent management system. Since then, it has continuously paid attention to improving governance, declaring a corporate governance charter and appointing an outside director as the board chairperson.

Kim Jong-hoon, Chairman of the Board of SK Innovation, is delivering a keynote speech on the topic "In the ESG Era, How Should We Respond?" at the '2021 Asia ESG Symposium' held on the 29th at the Westin Chosun Hotel in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

In particular, to establish ESG management, the board has created a checklist from the ESG perspective for all agenda items in advance, and last month decided to link ESG performance with CEO evaluation and compensation. Considering criticism that many domestic companies' boards do not fulfill their roles, SK Innovation is working to strengthen its own capabilities and independence. They are evaluating each director individually and are also considering having an external third party evaluate the board members. One of the outside directors has been appointed as a stakeholder communication committee member, which is a distinctive feature of SK Innovation’s board aimed at removing closed aspects and operating transparently.

Chairman Kim said, "In the case of American-style governance, there have been criticisms of focusing on short-term performance in the past, so there is no definitive answer to the question of 'which governance is the best,'" adding, "However, when we talk about 'Korean-style governance,' such aspects should not become limitations that bind ourselves." He continued, "Considering the reality that ownership and management are not separated in our companies, the board of directors is the means to firmly check the management."

He emphasized, citing the recent decision by SK Innovation to make a large-scale investment with Ford, that the board examined the impact and any issues in each ESG area, saying, "For the board to have significant authority, it must have corresponding expertise."