Sovereign Asset Management ("Sovereign") stated today that the continuing role of Chey Tae Won as Chairman of SK Corp, following the confirmation of his criminal conviction by the Korean Court on 10 June 2005, reinforces the need for ethical and credible leadership at SK Corp.
The tolerance by SK Corp's board of a twice-convicted criminal as its Chairman breaches the most fundamental principles of corporate accountability, which are essential to protect the capital entrusted by shareholders to a company's management. The manner in which Mr Chey has been permitted to return to the chairman's office, and run the same group which he has been convicted of defrauding, has set an alarming precedent. Such unhealthy acquiescence to corporate misconduct at SK Corp comes at the expense of shareholders who have been shown to have few enforceable rights. This sends a terrible message to the future generation of young Korean business leaders.
The ongoing failure by SK Corp's board or any of its frequently-touted committees on transparency or corporate governance to explain the multi-billion dollar losses at SK Networks, and assign clear responsibility for the massive fraud, show repeated claims of corporate governance improvements by the company to be cosmetic and lacking in substance.
James Fitter, Chief Executive Officer for Sovereign, said: "Over the last two years, we have sought to encourage SK Corp to choose the highest levels of transparency and accountability and yet disappointingly, none of the governance issues Sovereign raised with the board have been resolved."
Mr Chey's guilt in defrauding company shareholders has been placed beyond doubt by the court's reconfirmation of his conviction. Mr Chey led the group for the past seven years, during which time much of the fraud took place.
The windfall of record profit margins in the refining industry may flatter SK Corp's management, but the decline in the SK Corp stock price, in contrast to the rest of the Korean stock market this year, continues to demonstrate that the investment market retains a justified lack of confidence in Mr Chey's leadership. The broken trust between SK's management, and its shareholders who own the company, remains. The return on investment in S-Oil over the last 12 months has been four times greater than that of SK Corp [See Fig 1.] .
James Fitter, Chief Executive Officer for Sovereign, said:
"The absence of meaningful change at SK Corp over the last two years is a national tragedy. Good corporate governance is synonymous with national prosperity. Without adherence to internationally accepted standards, SK Corp is perpetuating the Korean discount.?The absence of accountability by the SK Corp leadership has not only done a disservice to its employees and its shareholders, but also to the advancement of Korea's national prosperity.
Fig 1.
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