Sajo Daerim Ranks Last: Stingy Dividends and 3% Rule Loopholes [K-Food G Report] ③

Sajo Daerim Receives Lowest D Grade Among Food and Beverage Companies
Only Formal Structures in Place...
Fails in Effectiveness and Transparency

Editor's NoteAlthough the global "K-Food" boom has raised the profile of Korean food companies, their outdated governance structures remain largely unchanged. While global brand credibility continues to rise, critics point out that management systems are still stuck in past practices, with insufficient efforts to regain investor trust. In line with the enforcement of the revised Commercial Act, Asia Economy has assessed the governance of the top 20 listed food companies by market capitalization. Over five installments, we will examine the results of a quantitative and qualitative analysis of ten criteria-including dividend policy, treasury stock management, dual listing structure, and board composition-as well as areas for improvement.

Sajo Daerim received the lowest grade of D among domestic food and beverage companies in a recent governance evaluation. While the company has established formal structures such as board committees, it effectively failed in terms of operational effectiveness and transparency. Notably, weaknesses were identified in the absence of shareholder return policies, insufficient protection of shareholder rights, and a lack of diversity among outside directors.

This evaluation was conducted by Asia Economy, which assessed the top 20 listed food and beverage companies by market capitalization across ten categories, including dividend policy, dual listing structure, treasury stock management, and board operations, using both quantitative and qualitative methods. Sajo Daerim scored 7 out of a possible 20 points. The company received zero points in categories such as dividend policy, adoption of electronic voting, efforts to fulfill directors' fiduciary duties, and shareholder return policy. According to the Korea Exchange's corporate governance report, the company complied with only 26.7% of the core governance indicators.

Daerimseon Fish Cake, the flagship product of Sajo Daerim
Photo by Sajo Daerim

No Dividend Policy, Absence of Shareholder Return Structure

Sajo Daerim's dividend payout ratios over the past three years were 3.6% in 2022, 3.0% in 2023, and 2.8% in 2024-well below the industry average. Not only is there no dividend policy, but there is also no decision-making process in place prior to the record date. From an investor's perspective, it is virtually impossible to predict dividends.

The company currently holds 4.95% (454,006 shares) of its total issued shares (9,164,467 shares) as treasury stock. In February this year, it disposed of 275,000 shares, but neither a cancellation plan nor future management plans for treasury stock have been disclosed in the business report. The company only stated that it "takes into account market conditions and financial standing."

There are no internal procedures in place to accept shareholder proposals. Electronic voting and electronic proxy systems have also not been adopted. While the company stated in its governance report that "statutory rights are guaranteed," the market assesses that, in reality, there are no practical channels for shareholders to exercise their rights.

There is virtually no communication with minority or foreign shareholders. Over the past three years, there has been only one investor relations (IR) session. The company website does not provide an IR contact email or phone number. There are no dedicated channels or information systems for minority shareholders.

Only some contact information is included in regular reports. Notices for convening general shareholders' meetings merely satisfy legal requirements. The cumulative voting system has not been introduced, effectively blocking minority shareholders from participating in the election of directors.

No Dual Listing, but Lack of Board Independence

Although Sajo Daerim does not have a dual listing structure between its holding company (Sajo Systems) and its operating company, it is assessed to have failed to secure independence in terms of board composition and operation. The company operates a total of five board committees, including the ESG Committee and the Outside Director Nomination Committee. The Sajo Daerim board consists of eight members: four inside directors, one other non-executive director, and three outside directors. Among them are Chairman Joo Jinwoo (other non-executive director) and Vice Chairman Joo Jinhong (inside director), both members of the owner family. The board chair is Kim Taekjun, head of sales, who also serves as an inside director.

Among the outside directors, Han Sanggyun has 25 years of experience at Sajo CS, Sajo Industries, and Sajo Daerim. Although conflicts of interest are reviewed during director appointments, excessively long internal tenure is seen as an obstacle to securing independence. There are no female directors on the board, and diversity in terms of age and professional background is also lacking.

Although a Compensation Committee exists within the board, the absence of any performance-based criteria renders it largely symbolic. Committee regulations do not specify performance standards, nor are activity details disclosed. All outside directors receive the same remuneration, with no exceptions for audit committee members. The company has not taken out Directors and Officers (D&O) liability insurance, meaning there is no mechanism to mitigate risks associated with management failures.

Audit Committee Exists, but Lacks Substantive Independence

Sajo Daerim's Audit Committee is responsible for selecting external auditors, overseeing the internal accounting management system, and monitoring internal transactions. However, all Audit Committee support staff belong to departments under management, and the committee does not have authority over personnel decisions regarding these staff members. This structure undermines the independence of the audit function.

There is also no official post-audit evaluation of external auditors. Communication between the Audit Committee and external auditors is limited to one or two written reports per year. No actual quarterly meetings have been held. While attendance rates for board and Audit Committee meetings are disclosed in business reports, the content of individual directors' remarks and their votes for or against proposals are not recorded. Although board meeting minutes exist, there are no audio recordings or separate meeting records.

There is no internal system for evaluating committee performance, and activity details are not disclosed except in business reports. It is difficult to obtain key information such as quantitative performance by committee, records of corrective actions, or examples of responses to external audits.

Meanwhile, Chairman Joo Jinwoo has long been criticized for circumventing the Commercial Act provision that "one audit committee member must be elected separately from other directors and the largest shareholder's voting rights are limited to 3%" by using shares held by affiliates (related parties). In 2021, Sajo Group had a direct confrontation with minority shareholders over the 3% rule. At the regular shareholders' meeting of Sajo Industries that year, the company attempted to merge Castlelex CC Seoul (owned by the company) and Castlelex CC Jeju (owned by Vice Chairman Joo Jinhong), but minority shareholders applied the 3% rule to the election of audit committee members, resulting in the withdrawal of the proposal.

Subsequently, at an extraordinary shareholders' meeting in September of the same year, Chairman Joo distributed his own shares to acquaintances in 3% increments, raising his voting rights to 9%, and passed an amendment to the articles of incorporation that effectively blocked the appointment of non-executive directors to the Audit Committee. Some in the capital market have strongly criticized this as a typical case of circumventing the intent of the Commercial Act revision through expedient governance practices.