Sale Reflects SK Corp's Failure To Implement Substantive Corporate Governance Reform.
Sovereign Asset Management ("Sovereign") confirmed today that its group companies, including Crest Securities Limited ("Crest"), have sold their entire 14.82% stake in SK Corp.
Mark Stoleson, Head of Group Investments at Sovereign, said:
"Having exhausted all of the legal rights currently available to shareholders under Korean law Sovereign is now exercising the only meaningful right remaining open to us - withdrawal from our investment in SK Corp."
The sale of the Sovereign group's entire holding in SK Corp follows the repeated choice by the company's Board to continue with its discredited leadership and poor governance practices at the world's second largest single-site oil refiner.
Crest initially invested in SK Corp following the Board's announcement that it intended to embrace internationally recognised standards of corporate governance and transform SK Corp into an example for corporate transparency in Korea. In June 2003, SK Corp's Chairman, Chey Tae Won was convicted and imprisoned by the Korean courts for his part in an accounting scandal in which shareholders were defrauded of $1.2 billion.
SK Corp's shareholders have yet to receive an explanation from the Board regarding the causes of the group multi-billion dollar losses, despite the creation of committees on Transparency and Governance. As committee meetings are no substitute for actual transparency and ethical business leadership, shareholders remain exposed to the possibility of a continuation of the large-scale frauds that have plagued the SK group in recent years. In 2004, Son Kil-seung, the SK Group chairman was convicted for various improprieties at SK Shipping including providing Won 249bn (USD 207m) to Asang Corp without Board approval, perpetrating a Won 38bn (USD 31.6m) corporate tax evasion, illegally obtaining Won 788.4bn (USD 657m) without Board approval which was then used to speculate in the futures market, and misappropriating Won 12bn (USD 10m).
Sovereign's efforts over the last two years to encourage the adoption of simple steps to institute ethical leadership at the company have faced stiff resistance. The Board's defence of a claimed management right in the face of shareholders' calls for management accountability, culminated in the return of the convicted Chairman to the head of the SK group. This situation remains unresolved despite the recent reconfirmation by the Korean High Court of the Chairman criminal conviction in massively defrauding his public shareholders.
When capital is entrusted by shareholders to a company's management, this creates a fiduciary duty of care to manage the company in its shareholders' best interests. Without confidence that a company's management is both competent and ethical, investors can have no reasonable assurance that their capital will be correctly utilised. Repeated frauds without accountability shatter this essential bond of trust between investors and management, at the expense of the broader community. The effective use and allocation of capital is a key ingredient to national prosperity. Well-directed capital, invested in competent and ethical businesses, leads to prosperity for all.
Mark Stoleson, Head of Group Investments at Sovereign, said:
"Sovereign continues to believe in the future of SK Corp's business, being driven by a buoyant energy market. However, there is a difference between a great business and a great investment. It is important that each company to whom we entrust our capital has not only the ability to develop its commercial potential, but also has a management team which is responsive to its shareholders' concerns."
"Without increased transparency, or real management accountability, it is hardly surprising that investors remain sceptical of SK Corp's claims of reform. A simple comparison to S-Oil, which trades at a higher market value than SK Corp despite the fact that S-Oil has only half the profits, demonstrates the significant real cost of poor corporate governance for SK Corp's shareholders. It is difficult to imagine a clearer confirmation of the direct relationship between corporate governance, corporate value and national wealth than that demonstrated by the SK Corp story."
"The failure of SK Corp's Board to implement internationally recognised standards of corporate governance three years after a multi-billion dollar accounting scandal has left Sovereign without any assurance that similar abuses will not be repeated again at SK Corp. It is with regret that we find ourselves obliged to terminate our involvement with this business, which clearly has excellent potential, and we wish the company and its shareholders much success in the future."
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