Jung Woo-hyun, the former CEO of Mr. Pizza who resigned after purposefully setting up new stores to obstruct businesses owned by former franchisees, which led to one of them committing suicide, is the latest example of what is known in South Korea as ‘Owner Risk’, a term that refers to the effect the ruined reputation of a CEO have on shareholders. (Image: Yonhap)
SEOUL, Jul. 17 (Korea Bizwire) — As CEOs of South Korean companies continue to attract the ire of the public after a steady stream of abuse of power scandals, an increasing number of small shareholders who have suffered financially from the careless actions of the business owners are expressing frustration.
Jung Woo-hyun, the former CEO of Mr. Pizza who resigned after purposefully setting up new stores to obstruct businesses owned by former franchisees, which led to one of them committing suicide, is the latest example of what is known in South Korea as ‘Owner Risk’, a term that refers to the effect the ruined reputation of a CEO have on shareholders.
The scandal surrounding Lee Jang-han, the CEO of pharmaceutical company Chong Kun Dang over his use of abusive language to three of his formers drivers, also had a similar impact on the shareholders of the company, as the company and its affiliates’ shares dropped by 2 to 4 percent.
Lee was forced to publically apologize last Friday after an audio clip was leaked in which he was heard swearing directly at his drivers. “To those who were hurt by my behavior, I ask for forgiveness. I’m apologizing with my head down,” Lee said in his apology, but it was too late – the damage to the company’s image was already done.
When Jung, now the former CEO of MP Group that owns Mr. Pizza, was found to have beaten a security guard on top of obstructing businesses, the company’s stock price go down over a whopping 70 percent, from 4,365 won before the scandal to 1,265 won as of July 14.
As industry experts say scandals involving the immoral and unethical behavior of CEOs often lead to the public boycotting the company, it’s often innocent shareholders that have to unfairly face the consequences.
The scandal surrounding Lee Jang-han, the CEO of pharmaceutical company Chong Kun Dang over his use of abusive language to three of his formers drivers, also had a similar impact on the shareholders of the company, as the company and its affiliates’ shares dropped by 2 to 4 percent. (Image: Yonhap)
“Until the mid-1900s, business owners in the U.S. were similarly guilty of abuse of power, but as society changed, that type of behavior disappeared. In South Korea, however, while society changed, business owners still have the same old mindset which explains the constant cases of abuse of power,” an official from the Economic Reform Research Institute said.
Some say measures need to be introduced to protect shareholders in cases where the actions of CEOs heavily sway the stock market.
“Though pressuring CEOs through boycotts is the right thing to do, protective measures to provide compensation for small shareholders such as class-action suits need to be considered as well,” said Hwang Se-woon, a senior researcher at the Korea Capital Market Institute.
Hyunsu Yim (hyunsu@koreabizwire.com)
