[News Space=Reporter seungwon lee] As Harim Holdings, a leading domestic food company, was levied a large fine for unfair support of affiliates and price fixing, minority shareholders and the Korea Solidarity for Economic Reform have filed a shareholder derivative suit against Chairman Kim Hong-guk.

This lawsuit is a representative case in which the CEO is directly held responsible for the company's losses resulting from violations of the law, such as profiteering during the management succession process, the underpricing of Olpum stocks, and the collusion in fresh meat, and is causing considerable ripples in the financial world and capital markets.

All-Pum stocks sold at low prices... Controversy over "illegal succession to the second generation of the CEO"

In October 2021, the Fair Trade Commission discovered that nine affiliates of Harim Group had unfairly supported Olpum, which was 100% owned by the same second generation (Kim Jun-young, son of Chairman Kim Hong-guk), and imposed a corrective order and a fine of 4.97 billion won on all affiliates.

In particular, it was analyzed that Harim Holdings suffered a loss of approximately KRW 2.7 billion in January 2013 by selling 69.4 million shares (100%) of its affiliate, Olpum, to Korea Somebet Sales (Olpum), owned by Kim Jun-young, at KRW 1,129, which was KRW 39 lower than the regular price (KRW 1,168 per share).

Separately, Harim Holdings was fined 1.62 billion won by the Fair Trade Commission, and filed an administrative lawsuit to appeal the decision. However, it lost the first trial in February 2024 and the case is currently pending before the Supreme Court.

Harim Holdings and Chairman Kim Hong-guk stated that “there was absolutely no intention of providing unfair support or seeking personal gain,” but the Fair Trade Commission stated that “an illegal incentive structure was formed to succeed the group’s management rights.”

The Fair Trade Commission levied a massive fine of 175.8 billion won for a fresh meat (chicken) collusion case, with Harim receiving the largest fine of 17.1 billion won. 

In March 2022, the Fair Trade Commission (FTC) discovered that 16 fresh broiler meat manufacturers and sellers colluded on prices, shipment volumes, and purchase quantities 45 times between November 2005 and July 2017, imposing fines totaling 175.823 billion won. Harim Holdings (formerly Harim Holdings) was fined 17.1 billion won for its involvement in the "chicken price fixing," making it the industry's largest finer.

This collusion was revealed to have been a series of organized, long-term agreements carried out through nationwide distribution networks to manipulate market share and maximize sales.

Shareholder derivative suits… The 'managerial responsibility theory' spreads domestically and internationally.

Minority shareholders, including the Korea Economic Reform Solidarity, filed a shareholder derivative suit with the Seoul Central District Court seeking compensation for the company's losses. The lawsuit primarily seeks recovery of losses, including fines for past transactions that "resulted in losses by selling company assets at low prices for the benefit of the controlling family" and "neglect of illegal collusion conducted under the authority of the CEO."

In particular, the underselling of stocks resulted in direct losses of approximately KRW 2.7 billion. However, since the statute of limitations has expired, ten years after the act occurred, only the fine (KRW 1.62 billion) has been claimed as compensation. Regarding the collusion, due to difficulties in verifying the actual fines paid during the voluntary reporting and compliance process, a provisional claim of KRW 300 million has been made. Depending on the progress of the lawsuit, this could be increased to the full amount.

Domestic and international cases and legal concepts… Signs of strengthening the "duty of director oversight."

In Korea, there has been a recent increase in rulings strictly holding directors (including CEOs) accountable for their oversight and the establishment of internal control systems in cases of illegal acts such as "profiteering" and "collusion" by the families of corporate owners. Courts in advanced economies like the US and Japan also have numerous precedents awarding damages for reasons such as the explicit or implicit assistance of top management and the lack of adequate internal controls.

Amid the growing trend of "ESG management," attention is focused on the future trend of "increased management responsibility."

The Harim Holdings shareholder derivative suit is expected to become a landmark domestic precedent, effectively holding top executives accountable for acts that disrupt market order, such as insider trading, profiteering, and price fixing within a conglomerate. Depending on the court's decision, companies' responses to "board accountability" and "ESG (environmental, social, and governance) management" are also likely to gain traction.