Refusal to Hold EGM Shows SK Corp Directors' Complete Disrespect for Shareholders Rights
Sovereign to Launch Legal Challenge to SK Corp Board's Refusal to Allow EGM Refusal to Hold EGM Shows SK Corp Directors' Complete Disrespect for Shareholders Rights Monaco, 7 November 2004
In response to the refusal by SK Corp's directors to hold an EGM as requested by the company's largest shareholder, Sovereign Asset Management ("Sovereign") announces that legal redress will be pursued through the Korean courts. The call for an EGM is intended to permit shareholders to vote on whether convicted criminals or those indicted for serious crimes should be allowed to act as directors of SK Corp.
Sovereign's Chief Executive Officer, James Fitter, said:
"This is not a complex issue - it is simple common sense. It is the responsibility of the directors to protect the company's shareholders. Sovereign will now ask the Korean courts to perform the fiduciary and stewardship responsibilities which SK Corp's directors are unwilling to undertake."
The calling of the EGM is part of a broader struggle by both domestic Korean and foreign shareholders to force the board to fulfil its legal and moral responsibility to account for unexplained losses at the company, and to prevent such mismanagement from continuing.
The request for the EGM was supported by more than 470 minority Korean shareholders earlier this week who stated: "SK Minority Shareholders' Society yet again requests that a faithful explanation on illegal activities committed by the current SK Corp. management be made and that tangible measures be taken toward preventing such illegal activities from recurring, as well as recovering the funds lost". Korean shareholders also sought an EGM, saying: "In this light, we urge that SK Corp. accommodate fair and square the shareholders' "sacred" request for an extraordinary shareholders' meeting to convene."
Election of Competent and Ethical Directors is Not "Hostile M&A"
The current situation is about basic shareholders' rights and respect for the law. Sovereign has never sought control of SK Corp. Sovereign's responsibility is to ensure that SK Corp's board of directors is genuinely accountable to the company's shareholders. Not accountable to Sovereign, but to all shareholders both Korean and international.
Complete accountability and total transparency is clearly a threat to those who wish to assert that they have a special right to manage public companies and corporate assets without reference to shareholders. Attempts by the board to categorise the enforcement of shareholder rights as a hostile takeover simply reveals how hostile management is toward shareholders who seek to enforce their legitimate rights.
Missing Trillions Still the Central Question
The dispute centres on the board's refusal to account in any meaningful way for the company's recent failings. Both minority Korean shareholders and Sovereign have repeatedly sought a full accounting for malpractices at SK Corp. A list of nine specific concerns was detailed in a letter from Sovereign to the board of SK Corp on 16 March 2004. No response to this letter has ever been received from the board and all efforts to raise these issues, before and after the AGM, have been rebuffed.
The directors have made it clear that they have no interest in finding out what happened to trillions of won (billions of dollars) lost through criminal slush funds, futures speculation and unexplained causes. However, shareholders have categorically rejected the board's assertion that the missing funds are now a "closed" matter; or that they are the responsibility of the previous board; or that the board "inherited" these problems; or any of the other flimsy justifications for complete inaction which have been offered.
It is not acceptable for vital issues such as malpractice and theft to be simply swept under the carpet as though they never happened. Shareholders require a full accounting of what happened to their money. And it is the directors' solemn duty to provide these answers.
This is not a demand by Sovereign, but merely the lowest level of stewardship which good corporate governance demands. It is also the minimum level of accountability which company directors ought to provide without prompting from the company's shareholders. In short, the directors are responsible for explaining how the money was lost, where it went, how they are seeking to recover it and why this cannot happen again.
Until these matters are fully and transparently accounted for, all investors will consider that further proclamations of corporate governance reform at SK Corp reflect either incompetence or insincerity. This is a question of basic, professional, ethical and competent management by the board of directors.
Fitter added:
"After seven months, we offered the board a simple opportunity to demonstrate that they were willing to do the difficult part of corporate governance reform - not just setting up committees, or flying to China for board meetings, but by actually confronting wrongdoing within the company. The board has failed that challenge and deliberately refused to fulfil its fiduciary responsibility to its shareholders. More than that, by defiantly obstructing the calling of an EGM, the board is purposefully seeking to prevent the shareholders from protecting themselves from continued management abuse.
"The lack of true reform is the reason why SK Corp's valuation remains at a discount to the market. This action is disrespectful to the interest of all Korean and international shareholders - the people who own the company and who are enTitleMainMaind to ensure that ethical and competent leaders protect their interests."
Sovereign Refutes Board's Reasons for Rejection of EGM request
Sovereign believes that the reasons given by SK Corp's board for not calling an EGM are spurious and are merely an excuse to avoid accountability:
Proposals never put to a vote - At no point were the recommended amendments now proposed by Sovereign voted on specifically at the last AGM. By incorporating multiple resolutions into a single agenda item shareholders were deprived of the chance to vote on each issue, and they were thus forced to reject all issues, due to the inclusion of items which they did not support.
EGM does not incur a "cost of unnecessary time and energy" - SK Corp's board appears to imply that the rights of those who own the company are merely an irritating distraction. Shareholders are prepared to spend the time and energy to ensure the company can never repeat the corruption of its recent past - so should the board.
EGM is not a "battle for management control" - Sovereign deplores the continued deliberate misrepresentation of its intentions. Sovereign has never sought management control. Sovereign seeks competent management; honest management; management that understands its duty to all investors - the owners of the company. SK Corp needs management that rejects the nonsensical notion of a "management right" - an old lie that imposes the will of a few privileged managers over the many true owners of a company.
Sovereign's Proposals are necessary and urgently required - If SK Corp is ever to remove the stain of corruption, it has to confront the dishonesty at its heart. Without real corporate governance reform of the company, the company is destined to remain undervalued. SK Corp shareholders need protection against future misdeeds and with a board not prepared to look after their interests, they need a change to the articles to ensure protection as soon as possible.
Fundamental Questions
Fitter added:
"Every shareholder should ask: What other country would tolerate a director convicted of a white collar crime, who has spent seven months in jail, walking straight back into the CEO's office? Even if the board considers this to be normal, the shareholders certainly do not.
"Similarly, why do the outside directors of SK Corp find this imposition of an ethical standard to be so affronting, when they must meet this standard? Why should a lower standard be applied to executive directors who actually handle the company's cash?"
Shareholder Rights are More Important than Chey Tae-won
Assertions in Korea, that Sovereign's proposed resolutions are merely intended to remove director Chey Tae-won (who has been convicted on various counts of accountancy irregularities), fail to understand the real principle Sovereign is promoting.
Sovereign's concern is with the fundamental principle that shareholders have the responsibility to elect the most ethical and competent leaders available. To simply seek to remove Mr. Chey would be to elevate a person above this principle. The only reason Mr. Chey would be forced to depart would be if he fails the test of good governance.
The board's rejection of the shareholders' request for an EGM is in wilful opposition to the shareholders' clearly stated desire to have the most competent and ethical management available. This rejection demonstrates a complete disrespect for their fiduciary responsibility to shareholders. The obstruction by SK Corp's directors of their shareholders' fundamental rights not only damages the shareholders' confidence and support, but continues to damage the international business reputation of Korea.
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