It sounds ghoulish, but investors cheered the death of the head of the family that controls Korean Air Lines (KR:003490). The company announced, to the surprise of the Korean public, that Chairman and CEO Cho Yang-ho had died of lung disease in a Los Angeles hospital early on Monday, by Korean time.
Cho was ousted from the airline's board only on March 27, but investors clearly expect that his permanent departure from this world will usher in an era of change. Although his only son, airline President Cho Won-tae, is set to succeed him, an activist fund has become the second-largest shareholder in Hanjin Kal (KR:180640), the holding company that controls the air carrier.
There will be pressure on the next generation of the Cho family to be more accountable, given a litany of family scandals. Any disruption in the inheritance may even encourage a bidding war for control of any of the companies in the Hanjin Group. Reuters reported that his heirs may owe inheritance tax equivalent to US$148 million, half Cho's entire stake in Hanjin.
Korean Air Lines shares closed up 1.9% on Monday in Seoul, having risen as much as 8.2% during the day. The shares of holding entity Hanjin Kal soared 20.6%. Korean shares as a whole ended flat.
Hanjin is best-known as a shipping line, and shares of Hanjin Transportation (KR:002320) also saw significant gains, up 15.1% on the day.
Mention Korean Air Lines outside Korea, and many people may think about "nuts." It was Heather Cho, whose name is Cho Hyun-ah in Korean, who brought derision on her actions over her "nut rage" incident. In 2014, she forced a plan taxiing for takeoff at JFK in New York City to return to the gate because she was livid a flight attendant had served her macadamia nuts in a bag instead of on a plate in first class.
Heather Cho is the late chairman's elder daughter. His younger daughter, Cho Hyun-min, was investigated for assault by state prosecutors for allegedly hurling a cup of water at an advertising executive's face during a meeting. And Chairman Cho's wife, Lee Myung-hee, has been questioned by police several times over allegations she kicked, slapped and even threw a pair of scissors at employees.
Lee and the elder Cho daughter are also both about to stand trial on claims that they illegally hired Filipina housemaids. That's a case due to start this week that they will almost certainly ask to be delayed.
The late Cho patriarch is the first member of any founding family of one of Korea's all-powerful chaebol conglomerates to be removed from power by shareholder action. He was indicted last year on charges of embezzlement and breach of trust. He denied those charges.
The powerful Korean National Pension Service, one of the country's largest institutional investors, refused to re-elect Cho to the board of Korean Air Lines, where the pension service is the second-largest shareholder.
It wasn't public knowledge that Cho, 70, was sick. His name was the most-searched keyword on South Korea's top internet portal on Monday, Reuters said. One Korean Air executive told AP that Cho was treated for a lung illness late last year, and his condition "worsened rapidly" after he got kicked off the company's board.
Prosecutors have confirmed that Cho's death means the case against him is dropped, although the cases against other involved individuals can continue. He was accused of taking excessive commissions from Korean Air suppliers, selling his children's shares of a Hanjin affiliate back to the company at inflated prices, and tax evasion.
Across the board in Korea, there is fury at the air of entitlement demonstrated by the members of the chaebol families. Jay Lee, heir of the family that controls Samsung, was convicted last year of bribery and embezzlement. The same case ensnared former President Park Geun-hye, who was sentenced to 33 years in prison for collecting $12 million in bribes, and demanding much more. Lotte Group Chairman Shin Dong-bin was also convicted of bribing Park.
Close ties between government and business are at the root of the Korean economy. The nation was on its knees after the end of hostilities in the Korean War -- still not technically over -- and the military dictatorship that took over cooperated with and awarded contracts to the chaebol as the country rebuilt. Its resurgence, like Japan before it after World War II, is one of Asia's most-incredible economic success stories.
But the string of cases against former presidents and the chiefs of the chaebol empires show how public sentiment has shifted. Park's presidential predecessor, Lee Myung-bak, was also convicted of corruption last year. And his predecessor, Roh Moo-hyun, jumped to his death in 2009 while under investigation for corruption.
Liberal incumbent Moon Jae-in was elected in part because he promised to take a tough stance on the chaebol.
Until the recent family scandals, Cho's 27-year reign atop Korean Air was well-regarded. He first started expanding the airline in the 1990s, then really ramped up its presence in the wake of the 2003 recession in Asia and the scare over Severe Acute Respiratory Syndrome. It now serves 124 cities in 44 countries and has become one of Asia's best-known airline brands.
It was a surprise, too, that he was ousted on March 27, when the airline won 64% of the two-thirds of votes required to extend Cho's election to the board for another three years. The NPS vote against him was central, the pension fund saying he had a record of "undermining corporate value and infringing upon shareholder rights."
Cho kept his titles but lost any place on the board. It will now fall to his son to resuscitate the Hanjin group's reputation with shareholders, and to put his family's scandals behind Korean Air and its affiliates.
