SEOUL -- Facing opposition from its second-largest shareholder, South Korean tobacco group KT&G's motion to reappoint President Baek Bok-in, who is under investigation for accounting irregularities, is hanging in the balance ahead of a shareholders meeting on Friday, when foreign investors will determine his fate.
Industrial Bank of Korea has said it will vote against the plan and has initiated a campaign to fight the motion. The bank is controlled by the government and holds nearly 7% of the company behind Esse and other cigarette brands. KT&G's top shareholder, the National Pension Service, also has reservations about Baek amid media allegations of improper accounting.
Baek, who headed the overseas business then, is suspected of involvement in double bookkeeping in the company's acquisition of a 60% stake in Indonesia's sixth-largest cigarette maker, Trisakti Purwosari Makmur, in 2011.
KT&G board has put forward a resolution seeking to keep Baek on for three more years, on the recommendation of its evaluation committee consisting of outside directors. The committee said in a statement that the decision is based on Baek's "long-term business vision and strategy, motivation for innovation and global business mind."
It credited him with opening a path overseas that resulted in sales of 1 trillion won ($938 million). Baek became president in 2015 and has expanded KT&G's earnings beyond its slowing domestic market.
Baek, in the same statement, said that he felt "extremely responsible" to be nominated again and he vowed to "keep transforming KT&G into a globally competitive enterprise."
Foreign investors holding about 53% of KT&G's outstanding shares will decide if he can stay.
Global investors have been drawn to KT&G for its dominant position in South Korea's cigarette market that it controls with a 60% share, and the strong earnings that enable it to maintain high dividends. Besides tobacco, the group has businesses in ginseng, food, pharmaceuticals and international trade. Its group sales rose 3.6% to 4.66 trillion won in 2017, with core unit KT&G generating roughly 3 trillion won.
Even though its group net profit was down by 5% to 1.16 trillion won, the company still sought approval from the shareholders to raise its annual dividend to 4,000 won per share, up by 400 won, boosting the payout ratio to 43% from 37%. The dividend yield is over 4% based on Tuesday's closing share price of 99,000 won -- a high figure even compared against a trend toward more generous shareholder returns from listed South Korean companies.
Institutional Shareholder Services, a global proxy adviser, is backing Baek's reappointment. In its voting recommendations to shareholders, it raised "significant concerns" over the ongoing investigation, but said the allegations so far were only based on media reports and no concrete evidence has been brought to light. Since there are no formal charges against him, the reappointment "does not merit an 'against' vote at this time."
ISS said the nomination of Baek "appears to be independent and objective." While the adviser said the nomination procedures "can be considered not transparent" since the whole process only took seven days, it supported the decision as it was managed only by outside directors.
Nikkei Asian Review business and market news editor Kenji Kawase contributed to this article.