By Heekyong Yang and Hyunjoo Jin
SEOUL (Reuters) - Korean Air Lines Co Ltd shareholders removed chief executive Cho Yang-ho from its board in a landmark vote on Wednesday, making him the first founding family member of any South Korean corporate giant to be forced off a board.
The vote, which ended his 27-year tenure on the board of the country's biggest carrier, adds fresh momentum to growing shareholder activism in Asia's fourth-biggest economy, long dominated by corporate giants accused of ignoring minority investors.
The surprise win for minority shareholders also comes after U.S. activist hedge fund Elliott Management failed last week to convince investors to support its demand for a massive special dividend and board seats at Hyundai Motor Group.
"Today's result is a wake up call that Korean Air family's scandals starting from 'nut rage' have not been forgotten," said Park Ju-gun, head of corporate analysis firm CEO Score.
"Although Cho doesn't seem to lose a lot of his power without a board membership, it hits his image, and his family will behave much more carefully now that he realizes there are people checking on him and his management."
Korean Air has been plagued in recent years by a series of scandals involving its founding family members, which culminated in the indictment of the 70-year-old Cho last year over charges of embezzlement and breach of trust. Cho has denied the charges against him.
The troubles began after Cho's eldest daughter, Heather Cho, made headlines in 2014 when she lost her temper over the way she was served nuts in first class and ordered the Korean Air plane to return to its gate at a New York airport.
The incident, dubbed 'nut rage', severely tarnished the carrier's image and it was parodied on international TV and online for months.
In April 2018, Cho's youngest daughter Emily Cho faced a storm of public criticism for allegedly throwing a drink at a business meeting attendee.
Both resigned from their senior positions at the airline in the wake of the scandals.
"The company's reputation hit rock bottom and the business performance has suffered," Chae Yi-bai, a shareholder activist-turned-lawmaker, said at the shareholders' meeting on Wednesday, criticizing the Cho family for "the czar-like management style."
A total of 64.1 percent of shareholders present at the meeting voted for the airline's proposal, narrowly falling short of the two-thirds required for approving a three-year extension for Cho on the board.
The ball on Cho's board removal was set rolling on Tuesday when South Korea's National Pension Service (NPS), the airline's second-biggest shareholder, said it will vote against the re-election of Cho.
Influential proxy adviser ISS had also recommended investors vote against the reappointment, citing "sufficient evidence of egregious governance concerns and material failure of fiduciary duty."
CEO Cho did not attend the shareholders' meeting as he is overseas, a Korean Air spokeswoman said.
CHANGE "NEARLY IMPOSSIBLE"
South Korea has been trying to make its corporate giants - long dominated by powerful elites and run by family members - more accountable following a series of bribery and other scandals.
But some observers doubted much will change in the country's corporate governance record or at the airline.
Although his board membership is terminated, Cho can continue to keep his titles of chairman and CEO of Korean Air, company officials said. "The vote will not deprive him of management rights," Korean Air said in a statement.
Cho's only son Cho Won-tae, widely seen as the third generation successor of the conglomerate, is currently a board member of the company and the president of Korean Air.
"It is pretty obvious that junior Cho's vote will reflect his father's say, ultimately giving father Cho a free pass to continue to participate in issues," Park Chang-jin, a Korean Air flight attendant who revealed the 'nut rage' incident in 2014, told Reuters after attending the shareholder meeting.
Park was among a dozen protesters who gathered in front of the Korean Air headquarters building in Seoul, demanding Cho's removal from the board ahead of the meeting.
"It is nearly impossible to change South Korea's corporate culture when it comes to family members of chaebols," he said.
Korean Air shares rose as much as 5.6 percent after the vote but pared gains to close 2.5 percent higher, as investors lowered their expectations for a change for the foreseeable future, analysts said. Hanjin Kal Corp, the parent of Korean Air, ended up 0.4 percent after rising as much as 9.4 percent.
One of the country's main business lobby groups, where Cho serves as a vice chairman, expressed regret over the vote's results.
"The NPS made its decision based on social controversies," the Federation of Korean Industries said in a statement, adding that courts had yet to rule on Cho's case.