[The Editors' Verdict] The Youngest Daughters of Chaebol Families

Management Succession Should Be Proven by Ability, Not Inheritance

The eldest son, who inherited the family business, was ousted from management after facing public criticism for retaliatory driving. The youngest daughter, who took over management, uncovered her eldest brother's embezzlement and corruption through an internal audit and reported him to the prosecution. In response, the eldest son reported to the police that an associate of his youngest sister had allegedly raped a female employee. Subsequently, as the largest shareholder, the eldest son repeatedly shook up management by proposing that his son join the board of directors and demanding dividends worth several hundred billion won. Ultimately, he joined forces with his eldest sister, secured a majority stake in the company, and removed his youngest sister from her position as CEO.

This is not the plot of a drama about a chaebol family. It is the real-life story of a sibling management dispute that unfolded over the past decade at Ourhome, a comprehensive food company. In the business world, such conflicts are not uncommon during the process of second-generation owners inheriting management control. Recently, a similar sibling dispute over management rights broke out at Kolmar Group, a cosmetics original equipment manufacturing (OEM) company. In early May, Yoon Sanghyun, vice chairman of Korea Kolmar Holdings, filed a lawsuit demanding an extraordinary shareholders' meeting to replace the board of Kolmar BNH, a health functional food OEM subsidiary.

Kolmar BNH is led by Yoon Sanghyun's younger sister, Yoon Yeowon, who saw her brother's move as a procedure to dismiss her and countered by claiming it violated a 'family management agreement.' Kolmar Group founder Yoon Donghan sided with his youngest daughter. He requested the appointment of an auditor for Korea Kolmar Holdings and, last month, filed a lawsuit against Vice Chairman Yoon Sanghyun to reclaim all the Korea Kolmar Holdings shares he had gifted to him in 2019.Up to this point, it resembles a typical chaebol drama, with a mudslinging family feud over management rights.

However, the real twist in this drama lies elsewhere: in the performance that evaluates the successor's management ability. Kolmar BNH's sales peaked at 606.9 billion won in 2020, when CEO Yoon Yeowon took office, but have declined each year since. Last year, sales recovered to 616.5 billion won, but operating profit plummeted from 109.2 billion won to 24.6 billion won during this period. The share price of this KOSDAQ-listed company soared to 70,000 won in July 2021 but dropped to the 10,000 won range this year. This contrasts sharply with competitor Novarex, whose stock price surged 60% this year as it rapidly increased exports.

As a result, the share price of the holding company, Kolmar Holdings, has also continued to decline. Kolmar Holdings, which owns Korea Kolmar?a key player in the global 'K-beauty' boom?as a subsidiary, was considered a 'cosmetics beneficiary stock.' However, Kolmar BNH's poor performance has weighed down the company's value. This likely explains why Dalton Investments, a US activist fund that began acquiring Kolmar Holdings shares last year, actively participated in management at this year's shareholders' meeting.

In contrast, Koo Jieun, the youngest daughter of Ourhome, succeeded in turning a profit in her first year after taking over management. Last year, the company posted record-high sales of nearly 2 trillion won since its founding. During this period, operating profit nearly doubled from the previous year to close to 100 billion won. Nevertheless, Ourhome's eldest son and eldest daughter recently sold their combined stake of more than half the company to Hanwha Group. The future of Ourhome remains uncertain. However, questions remain about the business decision of Hanwha's second-generation owner, Vice President Kim Dongseon, who sold the food service company Foodist to a private equity fund for 100 billion won in 2020, only to acquire a 58% stake in competitor Ourhome for over eight times that price five years later.

In Korea, the public has long viewed management disputes among owner families with cynicism. This is because, as a Confucian society, filial piety and sibling harmony are considered especially important. There is also a strong negative perception regarding the succession of management rights to the children of business owners. According to a 2017 survey by the Anti-Corruption and Civil Rights Commission targeting experts such as university professors, 56.0% of respondents said that the hereditary succession of management in large corporations is undesirable, four times higher than the 14.0% who said it is desirable. This is due to the frequent incidents involving the abuse of power by second- and third-generation owners, as well as numerous cases where they inherited management control at a young age through rapid promotions without clear achievements. The succession of shares within owner families is a natural step in a market economy, as long as it is not an illegal gift. However, succession of management rights should be based on proven ability.