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The family of late Hanjin Group Chairman Cho Yang-ho, who passed away on Apr. 8
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Eyes turn to issue of conglomerate’s next governance structure after his death
Hanjin Group Chairman Cho Yang-ho passed away on Apr. 8 after a long illness. While the third generation of the Cho family appears poised to take over the group’s management reins, industry observers predicted possible risks of the inheritance tax burden dealing a blow to the governance structure, with holding company Hanjin KAL showing an increased trend toward dividends as a way of maintaining the Cho family’s control. At 12:16 am on Apr. 8, Korean Air announced that Cho had died in Los Angeles after a long battle with lung disease. Cho previously traveled to the US in November 2018 to undergo surgery, but his condition recently deteriorated, the airline explained. According to the airline, Cho’s family members were by his side in his final moments, including wife and former Ilwoo Foundation Chair Lee Myung-hee, son and Korean Air President Cho Won-tae, eldest daughter and former Korean Air Vice President Heather Cho Hyun-ah, and second daughter and former Korean Air Senior Executive Emily Cho Hyun-min. Cho’s unexpected passing has many watching to see how his Hanjin KAL shares are passed on to third-generation family members in the Hanjin Group. The group’s governance structure has the Hanjin KAL holding company at the top, with Korean Air and subsidiaries underneath. Under this framework, inheritance of Hanjin KAl shares translated into the inheritance of management rights within the Hanjin Group. The Cho family currently owns a collective 28.93% of Hanjin KAL: 17.84% owned by the late Cho Yang-ho, 2.34% by Cho Won-tae, 2.31% by Heather Cho, and 2.30% by Emily Cho. Industry observers said the most likely scenario is one where the oldest of the three siblings, Cho Won-tae, assumes ownership. Cho Won-tae joined the group in 2003 and became Korean Air president in January 2017. Appointed an inside director at Korean Air the following March, Cho was the only member of the chairman’s family included on the roster of Korean Air management after Cho Yang-ho’s failed bid for reappointment as an inside director at the airline’s general shareholder meeting last March. Heather and Emily Cho had previously left their positions within group after their respective “nut rage” (in which she prevented a plane from taking off by throwing a tantrum over “improperly served” nuts) and “water hurling” (in which she hurled water at an employee) incidents. With Cho Won-tae’s management capabilities still untested, some analysts are suggesting a professional management system could be temporarily adopted or that Heather and/or Emily Cho may return to management positions before their brother assumes control over the group. “While it does appear that the succession will proceed quickly with Cho Won-tae, there is also the possibility of a professional manager system being adopted for some time,” predicted CEO Score President Park Ju-geun. “Given their current exclusion from management and past history, it could be a [management rights transmission] scenario where Heather Cho takes over the KAL Hotel Network and Emily Cho takes over Jin Air,” Park suggested. Inheritance tax presents obstacle for smooth succession The inheritance tax issue is another obstacle to be cleared for the succession to proceed smoothly. “At a 50% inheritance tax rate, Cho Yang-ho’s family would have to pay inheritance taxes of around 172.7 billion won [US$151.13],” noted Shinhan Investment analyst Park Gwang-rae. “Another possibility is that the family might give up on the inheritance approach and make a ‘big deal’ with shareholders where the company is turned over to professional managers while they hold on to their executive positions,” Park predicted. The possibility of Hanjin KAL and Hanjin dividends being increased to provide funds to cover inheritance tax costs has also been raised. Additionally, disputes over management rights could erupt during the succession process. KCGI and the National Pension Service currently account for a combined 20.81% ownership of Hanjin KAL. Hanjin Group-related shares rose sharply the same day amid predictions of possible management right disputes and increased dividends. Hanjin KAL share prices rose 20.6% to 30,400 won (US$26.60), while Hanjin KAL preferred stocks began climbing as soon as the market opened, finishing the day at the price limit (29.9%). Share prices also rose 11.1% for Hanjin, 1.8% for Korean Air, and 3.4% for Jin Air. By Shin Min-jung and Cho Kye-wan, staff reporters Please direct comments or questions to [english@hani.co.kr]
