April 29, 2024

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Bang Kyung-man, CEO nominee of KT&G (Yonhap)

The biggest shareholder of KT&G has said it opposed a nomination for chief executive of South Korea's dominant cigarette maker, citing falling profitability and dubious business practices during the nominee's tenure as a board member.

In a regulatory filing Tuesday, state-run Industrial Bank of Korea (IBK), which holds some 8 percent stake in KT&G, also made "a shareholder proposal to improve (KT&G's) governance by strengthening the expertise and independence of the board of directors."

Appointing a new chief executive, which would mark KT&G's first leadership change in nine years, and an outside director are two main agenda items for the company's annual shareholder meeting set for March 28.

Last month, a committee of KT&G nominated Bang Kyung-man, who has served in various capacities at the company since 1998, as a candidate for chief executive.

IBK opposed Bang's nomination because "KT&G's operating profit has fallen more than 20 percent" since he was appointed as vice president of the cigarette maker, an IBK official said.

"Given a decision to secure friendly shares using its own stocks, the independence and fairness of the current board of directors are bound to be seriously questioned," the official said.

KT&G is expected to face a fierce battle to appoint Bang as new chief executive at an upcoming shareholder meeting, as an activist fund is seen lining up with IBK, some analysts said.

Unlike previous shareholder meetings that had appointed board members, KT&G accepted a proposal by the activist fund Singapore-based Flashlight Capital Partners to introduce a new voting scheme at this month's shareholder meeting.

Under the new scheme, shareholders of KT&G will be allowed to cast their votes to elect two directors from nominees through cumulative voting.

That means that the activist fund and IBK could get their nominee on the board of KT&G, some analysts said.

Earlier this month, Flashlight Capital endorsed a director candidate proposed by IBK, while withdrawing its own director candidate. (Yonhap)