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'Nut rage' heiress leads coup to overthrow younger CEO brother

After earning global infamy in what became known as the "nut rage" incident, heiress Heather Cho is poised for another fateful turn as she helps engineer a shareholder revolt against her brother atop one of South Korea's biggest conglomerates.

[SINGAPORE] After earning global infamy in what became known as the "nut rage" incident, heiress Heather Cho is poised for another fateful turn as she helps engineer a shareholder revolt against her brother atop one of South Korea's biggest conglomerates.

The former executive, who threw a tantrum and ordered a steward off a Korean Air Lines flight after she was served nuts in a bag rather than a bowl, is seeking to wrest control of the group that includes the carrier and a suite of hotel and logistics businesses. Ms Heather Cho's alliance has demanded the empire's leadership, including brother Walter Cho, 44, be replaced by "professional managers".

The sibling rivalry has spilled across the local press for months since Ms Heather Cho, 45, lent her support and voting rights to an alliance that includes an activist fund, which happens to be the biggest shareholder in the flagship Hanjin Kal Corp. The rebel shareholders have pushed for Mr Cho's removal as a board member, a seat that's up for a vote March 27.

Yet rather than undermine investor confidence in Hanjin Kal, the family feud has sparked a rally in the shares as Mr Cho has signalled he'll go along with some activist demands that he sell non-core assets like hotels.

Also, Delta Air Lines Inc has increased its stake, strengthening the alliance against Ms Heather Cho. Hanjin stock has almost tripled over the past 12 months and rose to a record on March 4. The shares have rallied 67 per cent since Feb 20, even as the coronavirus crisis has been slamming aviation and tourism companies.

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The dispute over who should run the Hanjin Group has helped boost the value of the Korea Corporate Governance Improvement (KCGI) fund's stake to about US$739 million as at Thursday, an early reward to the cornerstone of Ms Heather Cho's alliance. Still, the revolt has sent a signal that pressure for governance reforms hasn't been gaining traction, said Park Ju-gun, president of corporate governance researcher CEOScore.

One takeaway is that the push towards greater respect for minority shareholder rights at chaebols - as family-run conglomerates are called in South Korea - has stalled, Mr Park said. "If KCGI stayed on course and went on its own, then this could have been a signal of more reforms to come," he said. "By joining hands with Heather Cho, the alliance has lost a lot of sincerity about wanting reforms."

Mr Cho's office referred requests for comment to Hanjin Group, which declined to comment. The lawyer representing Ms Heather Cho said her stance on the group's management is the same as that of the alliance, which has a good chance of seeing its proposals approved at the shareholders' meeting later this month.


Like other chaebols, Hanjin Group succeeded for decades in keeping its sibling rivalries out of the news. What went on within the family was held close, even as the late patriarch Cho Yang-ho, who succeeded his father as head of the group in 2003, faced embezzlement allegations that were unresolved at the time of his death.

Now, Ms Heather Cho's mutiny against Mr Cho could help the push for women's empowerment in a country that ranked last among OECD nations in gender pay equality.

South Korea also came in last in percentage of women on corporate boards among 30 countries, according to an Institutional Shareholder Services Inc (ISS) report. Female representation was 2.3 per cent on boards in South Korea, "where hermetically sealed, family-contained chaebols run a significant number of companies, and traditional attitudes around gender roles run strong", ISS wrote in the report. A 2018 report by Deloitte showed the country with 2.4 per cent female directors, the lowest other than Saudi Arabia and Qatar.

While Ms Heather Cho's challenge to her brother's leadership is a first for a female at a major chaebol, it is less surprising that she is behind it. Along with the reputation for anger-mismanagement, she has a history of getting her way.

The alliance she helped form controlled almost 32 per cent of Hanjin Kal voting rights, just shy of the 33.45 per cent held by younger brother Mr Cho and his group, which as at December included their mother, sister Emily Cho and Delta. Voting at the shareholder meeting later this month will be based on stakes registered as of December, according to Hanjin Kal.

Ms Heather Cho, along with the KCGI and Bando, a builder that held an 8.2 per cent stake, have demanded Mr Cho be replaced with an established executive like former SK Telecom Co chief executive officer Kim Shin-bae.

Mr Cho has been at the group's helm since last year, inheriting the post after his father's death in April.

In some ways, his rise through the group's executive ranks was parallel to his older sister's advance.

As her role at the group grew, the Cornell University graduate with an MBA from the University of Southern California took charge over matters large and small. While overseeing the growing business, she led an update of Korean Air Lines in-flight meals, including development of an award-winning noodle dish and a redesign of crew uniforms that won positive reviews.

Like other high-ranking daughters in corporate dynasties, Ms Heather Cho is looked up to by South Korean women, said Lee Seung-hyun, an associate researcher at the Korea Women's Development Institute in Seoul. "Heather Cho was seen as a role model, although she had that unfortunate incident."

While Ms Heather Cho has yet to live down the "nut rage" label, her siblings also have been accused of meltdowns worthy of a television drama.

Younger sister Ms Emily Cho was pushed out of her job as a Korean Air Lines vice-president after allegations she threw water in the face of an advertising agency worker during a business meeting.

About two months ago, Mr Cho apologised for smashing a vase at his mother's home on Christmas Day 2019 during an argument over the company's leadership and his older sister's role. His mother, Lee Myung-hee, has apologised for the incident and joined the brother's alliance against Ms Heather Cho, KCGI and Bando.

"It's known that Heather was more capable than her other two siblings," said Mr Lee of the Korea Women's Development Institute.

That assessment is shared by Mr Park of CEOScore.

"It's quite sad to see this happen to Heather, given that she was the better of the three siblings," Mr Park said. "Heather is the first heiress from a top South Korean conglomerate to challenge management and try to take over."


With the coronavirus crisis bearing down on the global airline and hotel industries, Ms Heather Cho's alliance would need to show more detailed plans to win over smaller investors, said Um Kyung-a, an analyst at Shinyoung Securities Co in Seoul.

The rebel alliance "hasn't really made any proposals that would appeal to investors to take their side", she said.

For its part, KCGI reiterated that it wants professional management for the group and has made recommendations for candidates to the board. Through a spokesman, KCGI also said that Ms Heather Cho herself does not plan to take a management role.

"It's like watching a comedy," Mr Park said. "This has shown that whatever they have previously said, greed was the purpose of all this."


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