'Ultimate Dual Listing Empire' Harim... Kim Hongkuk's Kingdom, No Room for Shareholders [K-Food G Report] ⑦

The Chronic Issue of Dual Listing Structure
Opaque Capital Flows and Double Counting Inflate Group Value
Board Operations Under the Owner's Direct Control
Lack of Independence Raises Long-Term Governance Risks

Editor's NoteDespite the global "K-Food" craze elevating the status of Korean food companies, their backward corporate governance structures remain unchanged. While global brand credibility continues to rise, critics point out that management systems are still stuck in outdated practices, with insufficient efforts to regain investor trust. In line with the implementation 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 10 key indicators-including dividend policy, treasury stock policy, cross-listing structure, and board composition-and discuss areas for improvement.

Harim Group is known for having the most complex governance structure among domestic food companies, drawing criticism from minority shareholders. Critics argue that, in the process of consolidating the controlling family's power through a convoluted governance structure, cross-listing of both the holding and core operating companies, and a board dominated by the owner, minority shareholders have been neglected.

On August 13, according to a quantitative and qualitative evaluation by Asia Economy of the top 20 listed food and beverage companies by market capitalization, based on 10 governance assessment indicators, Harim scored only 8 out of a possible 20 points. This places Harim below the average score of 10.8 points among the 20 companies. In particular, Harim received a score of zero in key areas such as cross-listing, acceptance of shareholder proposals, and dividend policy.

The Chronic Issue of Cross-Listing

The core problem in Harim Group's governance structure is cross-listing. Harim Holdings serves as the group's holding company, under which five listed subsidiaries-including Harim, Sunjin, Pan Ocean, and Farmsco-are positioned. The main issue is the lack of transparency in the flow of capital and profits. Because both the holding company and its operating subsidiaries are listed, internal transactions and fund movements are intricately intertwined. Although holding companies are generally expected to focus on controlling subsidiaries rather than direct business operations, Harim has listed its major operating companies as well. As a result, there are concerns that profits from subsidiaries could be transferred to unlisted affiliates or companies owned by the controlling family.

Cross-listing can make the group's economic value appear inflated. As of the closing price on August 12, Harim Holdings had a market capitalization of 1.0327 trillion won. If the market capitalizations of the listed subsidiaries are simply added, the total reaches about 4 trillion won. However, since the holding company's market capitalization already reflects the net asset value (NAV) and profits of its subsidiaries, simply summing the figures leads to "double counting" of the same assets and profits. An expert in the capital markets explained, "While the group may appear larger on paper, this can signal overvaluation relative to its actual value, reducing its appeal for long-term investors. The controlling shareholder receives dividends and management benefits from both companies simultaneously, but minority shareholders end up investing twice in the same value."

Board Management Under Direct Owner Control

The lack of transparency in governance is also evident in the way the board is managed. Hongkuk Kim, chairman of Harim Group, serves as both CEO and board chair of the holding company and key affiliates, placing himself at the center of management decision-making. He holds both the CEO and board chair positions at Harim Holdings and Harim. In the past, he simultaneously served as a registered director for seven domestic and two overseas affiliates.

Although he relinquished some titles following criticism over excessive concurrent positions, Chairman Kim still directly oversees the core operating companies. Measures to strengthen board independence, such as increasing the proportion of outside directors or enhancing committee operations, are considered insufficient. Corporate governance experts point out, "If board independence is weak, the board cannot effectively monitor management. A structure in which the owner's personal decisions directly translate into group-wide decisions increases long-term risks."

The legal dispute over the sale of shares during the succession process to Chairman Kim's eldest son, Junyoung Kim, is still ongoing. Recently, minority shareholders, including the Economic Reform Alliance, filed a derivative lawsuit against Chairman Kim at the Gunsan branch of the Jeonju District Court. A shareholder derivative suit is a procedure in which minority shareholders hold directors accountable on behalf of the company.

The case stems from a January 2013 transaction in which Harim Holdings (then Jeil Holdings) sold 100% of the shares (69.4 million shares) of the former Olpum to Korea Sunvet Sales (now Olpum). The sale price was below market value, and at that time, Korea Sunvet Sales was wholly owned by Junyoung Kim. The Fair Trade Commission determined this constituted "private benefit for the controlling family" and imposed a fine of 1.62 billion won.

Harim Holdings filed an administrative lawsuit but lost in the Seoul High Court in February of last year, and the case is currently under appeal at the Supreme Court. Junyoung Kim currently holds shares in Harim Holdings through Olpum (5.78%) and Korea Biotech (16.69%), placing him at the top of the group's governance structure. Harim Holdings maintains its control by holding stakes in key subsidiaries, including Pan Ocean (54.7%), Harim (57.4%), Jeil Feed (88.1%), Sunjin (50.0%), Farmsco (56.3%), and NS Shopping (100%).

Meanwhile, Harim's average dividend yield over the past three years stands at 0.82%, which is only about one-third of the 2.3% average among the 20 food companies. Although the company maintains a policy of setting dividends at 20% of separate net income and conducting year-end and cash dividends, the timing and amount of dividends remain unpredictable. Plans for treasury stock cancellation are also unclear. The business report does not disclose any future plans, and currently held treasury shares amount to only 0.02% (22,520 shares) of the total outstanding shares (106,209,702 shares), which is low compared to industry averages.