"Even Buldak Is Not Immune"... 95% of Food Companies Receive 'C Grade' in Governance as Owner Families Maintain Control [K-Food G Report] ①

Only KT&G Earned an A; 95% Rated C or Below
More Than Half Have Dual Listings... Insufficient Separation of Control
Treasury Shares Also Neglected... Lack of Commitment to Shareholder Returns

Editor's NoteAlthough the global “K-Food” boom has elevated the status of Korean food companies, their outdated governance structures remain unchanged. While global brand trust is steadily increasing, there is criticism that management systems still rely on past practices and that efforts to regain investor confidence are insufficient. In line with the enforcement of the revised Commercial Act, Asia Economy has assessed the governance structures of the top 20 listed food companies by market capitalization. Over five installments, we will examine the results of our quantitative and qualitative analysis across 10 criteria-including dividend payout ratio, treasury stock policy, dual listing structure, and board composition-and discuss areas for improvement.

Three out of ten major domestic food companies received a "D grade" (failing level) in governance evaluations. Dividend payout ratios were low, there were no plans for utilizing treasury stocks, and boards of directors continued to operate under an owner-centric model. Only a handful of companies had incorporated the board’s fiduciary duty to shareholders, as mandated by the revised Commercial Act, into their systems.

On August 11, Asia Economy conducted a quantitative and qualitative evaluation of the top 20 food and beverage companies by market capitalization, using 10 governance assessment criteria. Only one company, KT&G (18 points), received an A grade (18 points or higher). Twelve companies received a C grade (10-14 points), while seven companies received a D grade (9 points or lower). In total, 95% of the companies were rated C or below.

Only KT&G Earned an A Grade... 95% Rated C or Below

This evaluation, conducted with advice from Ahn Sanghee, Head of Governance Consulting at Daishin Economic Research Institute, was based on 10 criteria: dividend payout ratio, dual listing structure, treasury stock management, adoption of electronic voting and electronic proxy systems, introduction of separate election for audit committee members, efforts to address directors’ fiduciary duties, formalization of shareholder return policies, acceptance of shareholder proposals, proportion of internal transactions, and compliance with recommended items in the governance report. Each item was scored from 0 to 2 points, and total scores out of 20 determined grades from A to D. Companies received 2 points if their average dividend payout over the past three years was 50% or higher, and high scores for actively utilizing treasury stocks through cancellation or dividend distribution. Companies with no dual listing received full points, while those with both holding and operating companies listed were penalized. Response to the revised Commercial Act’s “directors’ fiduciary duty to shareholders” was also evaluated.

Companies receiving a C grade included Orion (13 points), CJ CheilJedang (12 points), Nongshim (10 points), Ottogi (12 points), Lotte Chilsung Beverage (11 points), Lotte Wellfood (12 points), Dongwon Industries (13 points), Binggrae (12 points), SPC Samlip (10 points), Pulmuone (11 points), Namyang Dairy Products (11 points), and HiteJinro (11 points). Samyang Foods (8 points), Daesang (9 points), Samyangsa (8 points), Sajo Daerim (7 points), Harim (8 points), Sunjin (9 points), and Maeil Dairies (9 points) all received D grades.

More Than Half Have Dual Listings... Weak Structures for Dispersing Control

The most prominent issue was the “dual listing” structure. More than half-11 out of 20 companies-had both holding and operating companies listed. This included Orion (Orion Holdings), CJ CheilJedang (CJ), Nongshim (Nongshim Holdings), Lotte Chilsung Beverage and Lotte Wellfood (Lotte Holdings), Daesang (Daesang Holdings), Samyangsa (Samyang Holdings), Harim and Sunjin (Harim Holdings), Maeil Dairies (Maeil Holdings), and HiteJinro (HiteJinro Holdings). Dual listing dilutes the value of parent companies and causes significant losses to existing investors, but analysis shows that the majority of leading Korean food companies continue to use this structure to maintain the influence of owner families.

Only three companies had separated the roles of board chair and CEO to divide management and oversight functions. At KT&G and Dongwon Industries, outside directors served as board chairs, while at Pulmuone, a former CEO (now a non-executive director) held the position. In the remaining 17 companies, the CEO also served as board chair.

Regarding the presence of owner families on boards, companies such as Nongshim, Lotte Chilsung Beverage, Lotte Wellfood, Samyangsa, Samyang Foods, Namyang Dairy Products, Harim, and Sajo Daerim all had owner family members as registered executives. In particular, at Samyang Foods, Harim, and Samyangsa, the owner served as both CEO and board chair, effectively neutralizing the board’s oversight function.

Concerns have been raised about Namyang Dairy Products potentially going private, given that a private equity fund is its largest shareholder. Three out of four board members were from Hahn & Company, and these individuals also chaired key committees such as the personnel and compensation committees, in addition to the board itself.

Gap in Treasury Stock Policy... Lack of Commitment to Shareholder Returns

Dividends are a core element of shareholder return policies. Among the 20 companies surveyed, seven had a dividend payout ratio below 20%. This is extremely low compared to the average payout ratio of global food companies (60-70%). Utilization of treasury stock was also insufficient. Only four companies had announced plans to cancel or dispose of treasury stock to enhance shareholder value, and two companies did not hold any treasury stock at all.

Institutional foundations such as electronic voting and separate election for audit committee members also remain weak. Despite upcoming legal amendments, many companies had not adopted electronic voting systems, and the majority still allowed major shareholders to exert significant influence over the selection of audit committee members.

These structural problems are reflected in stock prices. Of the 20 companies surveyed, 13 (65%) had a price-to-book ratio (PBR) below 1. This means their market value does not even match their book (asset) value. In particular, Samyangsa (0.30), Sajo Daerim (0.50), and Maeil Dairies (0.47) had PBRs below 0.5, indicating severe undervaluation. All of these companies received D grades in governance evaluations. In contrast, global food companies such as Mondelez International (PBR 3.39) and PepsiCo (10.11) enjoy high market valuations.

Park Sangin, a professor at Seoul National University's Graduate School of Public Administration, analyzed, "The PBR of consumer goods companies in Korea is only about 40-50% of that in advanced countries," adding, "This is because Korea's corporate governance system fails to adequately resolve conflicts of interest between controlling shareholders and minority shareholders, making improvement necessary."