"Paek Jongwon's One-Man Rule" Risk...Theborn Korea Fails Governance Test

Diagnosis of Theborn Korea's Governance in Its Second Year as a Listed Company
All Outside Directors Are Legal or Accounting Professionals, Board Lacks Diversity
CEO Also Serves as Board Chair, No Checks and Balances, Internal Controls Missing

Theborn Korea, a leading domestic food service franchise, has been found to have a governance system that remains inadequate. The management structure, which relies on the judgment and influence of founder and CEO Paek Jongmin alone, is cited as the core of this institutional gap.

According to the Financial Supervisory Service’s electronic disclosure system on October 30, Samil PwC designated Theborn Korea’s “franchise goods supply sales” as a Key Audit Matter (KAM) in its audit report for the previous fiscal year. The firm noted, “A significant portion of sales arises from internal transactions, so there is a high possibility that management’s judgment could be involved in determining supply prices and the timing of revenue recognition,” adding, “If internal accounting controls are lacking, the likelihood of accounting errors increases.”

“Key Audit Matters” refer to items that the auditor considers particularly important during the audit of financial statements and are mentioned separately in the audit report.

Paek Jongmin, CEO of Theborn Korea, is giving a presentation at Theborn Korea corporate briefing held on the afternoon of the 28th at Conrad Hotel in Yeongdeungpo-gu, Seoul. Photo by Kang Jinhyung

Samil PwC: “Possibility of Adjusting Franchise Supply Sales... Potential Risk”

According to Samil PwC, sales from supplying goods to Theborn Korea’s franchisees amounted to 338.564 billion won, accounting for 73% of total sales. This is a key performance indicator closely managed by management and represents the company’s business performance. The audit firm stated, “There is a high possibility of adjustments to achieve targets, and there is a potential risk that the recognized revenue amount may not be appropriate.”

Theborn Korea is currently expanding its scale by operating 25 franchise brands, including Korean food, snack bars, and coffee. In the franchise business, the headquarters supplies recipes and raw materials to franchisees, recognizing royalties (franchise fees) and ingredient payments as sales. In this process, there is a possibility of inflating sales or making false entries.

The audit firm added, “We determined that there is significant risk regarding the occurrence of franchise goods supply sales,” and “To address this, we evaluated the franchise sales process, accounting policies, and internal controls, and conducted external confirmation procedures by sampling balances of accounts receivable, advances received, and transaction evidence.”

Such findings are interpreted as revealing not just simple accounting risks, but also structural limitations in governance, such as the concentration of managerial decision-making and lack of internal controls.

The Board Chair Is Also Paek Jongmin... Virtually No Checks and Balances

In reality, Theborn Korea’s board of directors consists of seven members: four inside directors (Kang Seokwon, Chief Operating Officer; Choi Kyungseon, Head of Franchise Business; Kang Seokcheon, Head of Finance) including CEO Paek Jongmin, and three outside directors (Yoon Dongchun, Kim Haesoo, Choi Wongil). While the proportion of outside directors is 43%, which meets formal requirements, there are evaluations that securing substantive independence is limited.

Paek Jongmin concurrently serves as the board chair. The articles of incorporation do not include a clause requiring the separation of the CEO and board chair roles. With a structure where an outside director does not serve as chair, it is virtually impossible to check or monitor management’s policy decisions.

There is also a lack of diversity in the board’s composition. The articles of incorporation do not contain any provisions regarding gender diversity, and all seven members are men. All outside directors are legal or accounting professionals, and there is no one to represent perspectives such as women, ESG, or consumers. This is why the board is criticized for functioning as a “mirror of management.”

Outside director Yoon Dongchun is a certified public accountant from Samil PwC and currently heads the audit division at Sunghyun Accounting Corporation. He is well-suited for financial control work, such as approving financial statements and reviewing internal accounting management regulations.

Outside director Kim Haesoo is a former chief prosecutor at the Supreme Prosecutors’ Office and is currently an advisory attorney at Law Firm Tong. Although known as an expert in major crime investigations, he has little connection to areas such as corporate governance or ESG and sustainable management. Choi Wongil, chair of the Outside Director Candidate Recommendation Committee, is also a legal professional with limited experience in corporate governance. As a result, the outside board is evaluated as serving more of a legal advisory role than a function to check management.

“Investor Information” Also Lacking

There are also no internal policies in place to prevent the appointment of executives who could harm corporate value. Neither the articles of incorporation nor the semiannual report contain relevant provisions, and this item is missing from the operation of the Outside Director Candidate Recommendation Committee.

There is no independent internal audit department. The articles of incorporation do not provide a basis for establishing an audit office, and the report only specifies the “Finance Team” as the support organization for the audit committee. Without a dedicated audit office, internal accounting control mechanisms are essentially absent. The company has not introduced electronic voting or cumulative voting systems. Despite being a listed company, institutional measures to expand shareholder participation are lacking.

The level of information disclosure for investors is also low. Theborn Korea’s website does not have an investor relations (IR) menu, and the semiannual report only lists stock price trends and the proportion of minority shareholders. ESG reports and mid- to long-term strategy materials have also not been released. While not required by law, there is criticism that the company fails to fulfill even the minimum explanatory responsibilities expected of a listed company.

Starting next year, all KOSPI-listed companies will be required to publicly disclose corporate governance reports. Previously, this obligation only applied to companies with total assets of at least 500 billion won, but from next year it will be extended to all KOSPI-listed firms. As of the end of the first half of this year, Theborn Korea’s separate total assets stood at 316.8 billion won, so it will be subject to the disclosure requirement from next year. For this reason, the current governance structure of Theborn Korea, which is heavily centered around CEO Paek Jongmin and the management team, is likely to pose a risk.

An official from the securities industry stated, “Given the nature of the franchise industry, decision-making authority is inevitably concentrated at headquarters, but as a listed company, it will be difficult to secure investor trust unless transparency and responsible management are strengthened.”

This content was produced with the assistance of AI translation services.