[Intl-tobacco] Study recommends 7% ownership limit in privatizing tobacco firm (fwd)

[Robert Weissman]

Study recommends 7% ownership limit in privatizing tobacco firm
Source: Korea Herald, Tuesday, 5/30/00

The privatization of the Korea Ginseng and Tobacco Corp. (KGTC) is
expected to proceed in a way that prevents any company or individual from
gaining a controlling stake.

Unveiling its study on privatizing the tobacco monopoly in a public
hearing yesterday, the Korea Development Institute suggested that the
ceiling on ownership be set at 7 percent and maintained for 4-5 years.

The rationale behind the idea is to prevent a chaebol group or
multinational tobacco giant from emerging as a controlling shareholder.

An official of the Ministry of Finance and Economy said the government
will draw up a final privatization plan based on the views presented at
the hearing.  "But it will not deviate much from the KDI study."

The studay said the ideal form of KGTC after privatization is the
separation of management from ownership as is common among U.S. and
British corporations.

It opposed the sale of a controlling stake to a chaebol or multinational
tobacco firm on three grounds. Firstly, the controlling shareholder is
highly likely to put private benefits before maximization of corporate
value;  secondly, given the characteristics of the tobacco industry, it is
more desirable to entrust the management of the company to a competent
professional manager than to a chaebol group or foreign company; and
thirdly, a chaebol group or foreign firm is unlikely to provide support to
domestic tobacco leaf farmers.

Based on these grounds, the study recommended that the present 7 percent
ownership limit, which was scheduled to be lifted by the end of this year,
be maintained till the professional management system takes roots.

The KDI study also suggested the chief executive officer be selected by a
CEO recommendation committee, to be formed by people independent from the
government and company management, possibly including representatives of
employees and consumers.

The 10-15 person committee will have two thirds of its members filled by
outside directors, who are to be recommended by a separate committee.

The study also recommends formation of a committee comprising experts in
management, accounting and personnel management to strengthen the role of
the board of directors.

A management committee should also be established with a president, vice
president and managers of business divisions to carry out committee
directives and execute day-to-day operations.

If the government follows the recommendations, the sale of government
shares, previously scheduled to be completed by the end of this year, is
likely to be delayed depending on market conditions. The government is
also likely to review a policy to pay subsidies to farmers which gives up
growing tobacco leaves.

The KDI study has drawn keen attention as it is believed to present a
model for privatizing other state-invested corporations.