The recent turmoil surrounding SK Corporation is unrelated to the sound business of SK Corp. itself, but stems from concerns that the company's financial resources are being misapplied for the benefit of third parties. The criminal conviction last Friday 13 June of three of the directors of SK Corp confirms the well-founded justification for such concerns. This highlights the urgent need for new leadership at SK Corp.
SK Corp Board Must Recognise the Demise of SK Group The conviction of the chairman of SK Group, plus the founding family member, for financial irregularities, has drawn attention to the destruction of shareholder value at the SK Group over the last decade. In the absence of a commercial, moral or ownership right to direct the affairs of SK Corporation, it is no longer appropriate for these directors to participate in the management of the company.
SK Corp Board Unable to Function The Seoul district court ruled on Saturday that these same three directors were disqualified from voting on any issues relating to the bailout of SK Global due to their conflicted relationship with the so-called SK Group.
With only two un-conflicted executive directors available to advise them, it is beyond credibility that the five external directors were able to make a fully informed assessment of the commercial merits of a bailout of SK Global in a single day. That responsibility for such a decision had to be carried by the external directors is, in itself, an indictment on the conflicted board composition of SK Corp.
Bail Out Lacks Due Consideration Nevertheless, on Sunday the remaining directors of SK Corp approved a plan to help bailout SK Global, the affiliate whose books the conflicted and convicted directors had helped falsify. The decision by the board of SK Corp to bail out a company whose debts exceed its assets by KW4.4 trillion highlights the need for stronger, independent leadership at SK Corp. Sovereign applauds SK Telecom's publicly stated stance that they will provide no further support to SK Global.
While the board of SK Corp have tried to present their decision as being commercially justified, it is evident that the decision was taken by external, non-executive directors without the benefit of independent advice. It would be normal in such circumstances for a board to appoint a respected investment bank to undertake due diligence and make a recommendation on the commercial merits of the bail out.
The Disregard of Shareholder Interests The fact that the external directors considered themselves obliged to commit billions of won of assistance to SK Global's financial "black hole" in the face of clear opposition from SK Corp's shareholders (the company's owners), and its employees, highlights the legacy of undue influence by an illusory and discredited chaebol group. The failure to consult with the company's shareholders, until after an agreement is reached with SK Global's creditors, demonstrates a lack of accountability to the company's owners.
The Need for New Leadership As a consequence of recent events, it is evident that SK Corp is in need of new directors who enjoy the confidence of their shareholders, employees and the financial community. Accordingly, Sovereign calls on Mr. Son Kil-seung, Mr. Chey Tae-won and Mr. Kim Chang-keun to voluntarily step down from the board of directors of SK Corp.
The continued presence of these directors on the board of SK Corp is undermining the company's ability to establish the credibility that is necessary for the company to prosper and fulfil its financing requirements. Their resignations would be accepted as an honourable attempt to ensure the future well-being of SK Corp, and its vital role as Korea's largest oil refiner.
Implementing Corporate Governance and Transparency SK Corp committed itself to act independently and in keeping with high standards of corporate governance on its website on 19 March, but the proposed chaebol-like support for SK Global is in direct contradiction to these principles. It is in moments of difficulty such as this that a company's true commitment to good governance is tested. Acknowledging shareholder concerns by charting an independent path under new leadership would demonstrate a genuine commitment to the long-term welfare of SK Corporation and the creation of shareholder value.
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