Flashlight Capital (FCP) urges KT&G to select its next CEO in a more transparent manner.
In a video released ahead of the Korean tobacco company's annual shareholder meeting in March 2024, Flashlight Capital highlighted issues it had considered during its previous CEO nomination process. For example, the company expressed regret that current CEO Beak Bok-in was the only candidate and criticized the board's unusually quick decision-making in 11 days.
Flashlight Capital also expressed disappointment with the performance of the white candidate who has held the position for three consecutive terms. According to its statistics, in the past nine years, KT&G's stock price has fallen by 19%, while the KOSPI index has increased by 26%.
The investor questioned management's "futile pursuit of volume" at the expense of profits, noting that revenue grew 40% while operating profit fell 17%. Flashlight Capital pointed out that "lack of profit motive" is the main reason why the stock is trading at a discount of more than 50% relative to its peers.
To solve this problem, Li Shangxian, managing partner of Flashlight Capital, recommends allowing enough time for the evaluation process of suitable candidates; considering outsiders with expertise in FMCG; and documenting the entire process thoroughly for the sake of transparency.
"The 11-day CEO nomination is unprecedented in South Korea and even stands out among other former state-owned enterprises," Lee said in a statement.
In 2022, KT&G rejected Flashlight Capital's request to divest its lucrative ginseng business and appoint certain outside directors.
