Lack of Professionalism in KT&G's Board of Directors

According to a recent report from the Korean Economic Daily, the board of directors of Philip Morris International (PMI) consists of 11 external directors, all of whom are current senior executives at global companies. On the other hand, among the six external directors of KT&G, the Korean Tobacco company, only the representative director from SK Materials and the current chairman, Ren Min-kyu, are senior executives at a large corporation.

KT&G's external directors include chairs of industry associations unrelated to the company, representatives of small entertainment companies and advertising agencies. One of the members is even the president of an advertising agency with less than 10 employees. However, KT&G is unable to legally engage in advertising activities.

One prominent issue is the lack of professionalism among the external directors of KT&G. According to a survey by the Korean Economic News, out of the 44 external directors who have served or have previously served at KT&G since its privatization in 2001, the majority, 17 individuals, were professors, while only 12 were entrepreneurs. In contrast, the proportion of corporate executives at Philip Morris International is noticeably higher.

Due to a lack of expertise, the board of directors at KT&G failed to provide advance warning on several significant issues, such as the recent controversial "crisis of unrecoverable deposits in the US.

Industry insiders stated that during the KT&G board meeting in December 2021, a proposal concerning the suspension of sales of products by its US subsidiary was brought up. Surprisingly, none of the external directors at the time pointed out the potential risk of not being able to refund deposits.

In addition, external directors have not raised concerns about KT&G's establishment of a management system predominantly composed of executives with a background in civil service. It is understood that since 2001, KT&G has distributed approximately 11 million KT&G shares and around 100 billion yuan in cash to various funds and stock associations consisting of current and former employees, transferring ownership without charge, thereby becoming the largest shareholder (based on common stock, accounting for 9.6%).

In this situation, appointing external directors is equivalent to handing over voting rights to the company, significantly impacting the "government official-turned-CEO" model.

Critics in the industry have condemned KT&G for appointing non-experts as external directors, essentially demanding that they serve as mere "solicitors" who are expected to vote in favor of the company's proposed agenda.