[ANALYSIS] Namyang Dairy's unchanging governance reality - Korea Times
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[ANALYSIS] Namyang Dairy's unchanging governance reality

By Kim Jae-heun

Namyang Dairy Product has been embroiled in more than a few controversies that have incurred public anger leading people to boycott the company.

A scandal occurred in May 2013 when it was discovered that a company salesman was threatening wholesale customers in order to force them to buy more products.

The same year, it was found to be still forcing female employees to quit their jobs when they got married or changing their status from a full-time worker to a contract employee. This left just six female staff being employed at the firm's headquarters at that time.

The company managed to commit several more dubious and even illegal acts over the next few years ― degrading its reputation ― up to the present when it finally made such an irreparable mistake that both its CEO and Chairman had to step down.

In this latest fiasco, Namyang released an exaggerated report last month about its yogurt drink Bulgaris, claiming that it had anti-viral properties that were effective against COVID-19.

This led the Ministry of Food and Drug Safety to launch an investigation into the company's so-called research behind this claim. It concluded that the company had broken the Act on Labeling and Advertising of Food.

Namyang CEO Lee Kwang-bum resigned April 26 following a police raid on the firm's headquarters in Seoul two days earlier, while Chairman Hong Won-sik also stepped down the following day.

Hong also announced that management of the company would not be passed on to his children.

Company's governance questioned

During a press conference held May 4, Hong said he would take full responsibility for the pseudoscientific claim regarding Bulgaris, adding that the company would practice transparent management from now on.

However, Hong's statement raised questions, considering the company's governance system.

Namyang Dairy's board of directors consists of 6 members; four executive directors and two nonexecutive directors from outside the firm.

Former CEO Lee was the chairman of the board of directors but due to his resignation, there are now only three executive directors ― all members of Hong's family, namely former Chairman Hong, his mother Ji Song-jook and eldest son Hong Jin-seok.

There are two outside directors on the board but they exert limited influence over company management meaning Namyang Dairy is still effectively run by the Hong family.

When Chairman Hong resigned, he did not say he would give up his post as an executive director. His term as such was successfully extended in March this year and it is likely that he will serve out his full tenure as a director.

Regardless of whether or not he steps down from this post as well, it is likely that he will maintain influence over the company by registering himself as an outside director. His mother Ji has been participating in management decisions as a permanent director after having her term extended nine times already.

"Namyang Diary Product has already been marked as an unethical enterprise for its illegalities. It needs to beef up its ethical management while continuing to make sincere apologies to the public," said Prof. Suh Yonh-gu of Sookmyung Women's University's Business School.

Hong's family members are major shareholders too. Hong, his wife Lee Woon-kyung, his brother Hong Myeong-sik and his grandson Hong Seung-ui hold 51.68 percent of the company's shares. And as long as the family members keep their stake, their influence will remain powerful.

Will Hong really give up family-owner system?

There was a similar cases with local food firm Pulmuone in 2018. Its founder Nam Seung-woo stepped down and was replaced by a professional CEO as the company said it would separate its ownership from management. However, contrary to the statement, Nam registered himself as an advisor and was named as a non-executive director on the company's board. He also maintained his chairman position and still has a powerful influence on the company's important decisions.

There is also the possibility that at Namyang, Hong Jin-seok will take over as chairman, as while Hong Won-sik ambiguously said he would not hand over management to his children, this does not exactly mean that his two sons working there will leave the company.

Last month Hong Jin-seok was dismissed from his position for embezzling company money but he is still officially an employee at the firm. Hong Bum-seok, the second son of Chairman Hong, also works for the company.

Their acquisition of Hong's shares will proceed separately from the former chairman's declaration about the company adopting a professional CEO system. Hong Won-sik owns a 51.7 percent stake in the company and if he turns that over to his two sons, they will be able to exert their influence as major shareholders.

"Like chairman said, we don't know exactly what will happen it the near future. Everything depends on the owner's decision," a Namyang Dairy Product official said.

Kim Jae-heun jhkim@koreatimes.co.kr

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