'Unfinished Business' at SK Corp

Monaco - 15 March 2004

Latest Board Must Take Immediate Steps to Fulfil Corporate Governance Pledge.

Sovereign Asset Management stated today that despite partial changes in board membership following SK Corp's most recent AGM, none of the outstanding issues relating to management abuses at the Korean refiner have been resolved.

Sovereign calls on SK Corp's latest Board to immediately fulfil the company's longstanding pledge to introduce proper standards of corporate governance at SK Corp.

"Much unfinished business from past scandals, fraud, and misappropriation of shareholder funds remains to be transparently addressed, so that the causes are identified accurately and remedied," said James Fitter, CEO of Sovereign Asset Management. "Any attempt to deny and ignore past abuses will leave the company vulnerable to their repetition, as we have seen throughout 2003."

Fitter added, "Central to our ongoing challenge to the company is the continued leadership of Mr. Chey Tae-won, who is incapable of providing ethical and competent leadership following his conviction for accounting fraud. It is a year too late, but he should have the honour to do what any criminally convicted corporate leader would, and that is promptly resign."

In addition to demanding Mr. Chey Tae-won's resignation, Sovereign calls on the Board to immediately address a series of fundamental issues holding back the company's performance, as follows:

• Provide an accounting of what happened to the KRW4.4 trillion (US$3.7 billion) that was simply 'lost' at SK Networks.
• Publicly announce the steps it is taking to ensure that there can be no repeat of the reported KRW 1 trillion (US$847 million) misappropriation of funds in SK Shipping, including KRW 788 billion (US$668 million) used in futures speculation. Sovereign also calls on the Board to identify those responsible for any losses and seek recovery of funds.
• Publicly renounce the use of slush funds and bribes as SK Corp business practice. Also, recover funds estimated to be over KRW200 billion (US$169 million) that was wrongfully taken in 2003, from subsidiary SK Shipping, for this illegal purpose.
• Publicly clarify the terms of Mr. Chey Tae-won's personal guarantee held by SK Network's creditor banks over his assets. This clear conflict of interest pressures him to use SK Corp shareholders' assets to meet his personal financial obligations.
• Recover all fines paid by the company for legal breaches, by having the directors responsible for breaking the law reimburse the company.
• Instigate amendments to the company's statutes necessary to protect the rights of shareholders, including removal of convicted criminals from company management.
• Increase return on capital through capital allocation based upon return on equity (ROE). Acknowledge the fact that SK shareholders would have been better off over the last 10 years if SK Corp had kept its money in the bank rather than allow SK managers to run the business. A 10-year average ROE of 3.8% demonstrates the sustained destruction of capital by the SK group, after taking into account the inherent profitability of SK Corp's refining business.
• Acknowledge that SK Corp is a publicly owned company, and that it will in future be run for the benefit of all shareholders equally. Any suggestion of a 'family management right' is a contradiction of the Korean Commercial Code and therefore illegal. The Chey family owns a tiny 1.1% of this company and that fact needs to be understood.
• Institute a system of checks and balances in order to ensure that Chey Tae-won is prevented from diminishing shareholder value through continued insider and related party transactions.
• Sovereign reiterates that good corporate governance is synonymous with national prosperity. SK Corp needs to be liberated to make a positive contribution to the Korean economy, rather than create scandals, lose trillions of won, and thousands of jobs. "Good corporate governance naturally flows from ethical and competent leadership," said Fitter. "The deadline for fulfilling promises to reform SK Corp expired long ago. Until the above issues are addressed, Korea will continue to pay the price for criminal mismanagement."

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