[At a Crossroads: Listed Companies] How Aliko Pharmaceutical's Owner Family Secured High Salaries Despite Losses

Agenda on Directors' Remuneration Limit "Self-Approved" with Only 7.5% in Favor
Two Inside Directors Are Owner and Daughter... Receive Multi-Million Won Salaries

Hanggu Lee, Vice Chairman and CEO of Allico Pharmaceutical. Screenshot from Allico Pharmaceutical website

KOSDAQ-listed Aliko Pharmaceutical has been found to have "self-approved" an agenda item on the limit for directors' remuneration at its regular general shareholders' meeting. Although only 7.5% of the total shares voted in favor, the company passed the proposal by citing a legal provision that applies to the appointment of auditors. As a result, Hanggu Lee, Vice Chairman and CEO of Aliko Pharmaceutical, and his daughter, Executive Director Jihae Lee, will be able to receive annual salaries amounting to hundreds of millions of won again this year.

According to the Financial Supervisory Service’s electronic disclosure system on April 2, Aliko Pharmaceutical announced that at its regular general shareholders' meeting held on March 27, the "approval of the directors’ remuneration limit" amounting to 3 billion won was passed with 7.5% of the total issued shares voting in favor.

The "approval of the directors’ remuneration limit" is a matter that requires a regular resolution at the general shareholders' meeting. For ordinary resolutions, approval requires at least 25% of the total issued shares and at least 50% of the shares exercising voting rights in favor.

However, it is illegal for a shareholder who serves as a director to exercise voting rights in a resolution at the general shareholders' meeting that determines their own remuneration limit. Previously, in 2023, Hong Won-sik, Chairman of Namyang Dairy Products, who was both the largest shareholder and an inside director, voted in favor of approving the directors’ remuneration limit and was sued by the auditor as a result.

The Supreme Court ruled that this resolution was illegal. It clarified that for the "approval of the directors’ remuneration limit" to be valid, the voting rights of executives who are also shareholders must be excluded, and approval requires 25% of the total issued shares and 50% of the shares participating in the meeting. Nevertheless, Aliko Pharmaceutical passed this measure with only 7.5% approval of total issued shares.

Aliko Pharmaceutical explained that its basis for approval was the intent of Article 409, Paragraph 3 of the Commercial Act (relaxation of quorum requirements when electronic voting is introduced), which is to "normalize the operation of general shareholders’ meetings." The company argued that since sufficient shareholder participation was achieved through electronic voting and more than half of the voting rights of attending shareholders were in favor, the proposal was approved.

However, Article 409, Paragraph 3 of the Commercial Act is a provision related to the appointment of auditors. This clause states, "If a company has adopted electronic voting, the appointment of auditors may be resolved by a majority of the voting rights of shareholders present." The provision was introduced to relax approval requirements in situations where it is difficult to secure 25% of the total issued shares due to the '3% rule,' which limits the voting rights of major shareholders to 3% in auditor appointments.

A legal industry source with expertise in capital markets commented, "Article 409, Paragraph 3 of the Commercial Act is a special provision and does not apply to all ordinary resolution items." He further pointed out, "In particular, requirements for resolutions such as quorums at general shareholders’ meetings are core regulations for shareholder protection, so analogical application is highly limited."

As a result of Aliko Pharmaceutical approving the directors’ remuneration limit in this manner, Hanggu Lee, the company's Vice Chairman and largest shareholder, and Executive Director Jihae Lee will again receive high salaries this year. Executive Director Lee is the third daughter of Vice Chairman Lee. The company’s inside directors consist of these two individuals.

Last year, Aliko Pharmaceutical paid Vice Chairman Lee 581.25 million won and Executive Director Lee 160.29 million won in salaries. The company recorded an operating profit of 990 million won and a net loss of 600 million won last year. Despite the deficit, they received annual salaries exceeding several hundred million won. In 2024, even amid a large-scale operating loss of 5.2 billion won and a net loss of 5.4 billion won, they continued to receive high salaries.

In response, a representative from Aliko Pharmaceutical stated, "After legal review, it was determined that when a listed company adopts electronic voting, there is a need to analogically apply the 3% rule for auditor appointments to the approval of directors’ remuneration limits, and the agenda was resolved accordingly." The official added, "The salaries of the two inside directors were frozen for 2024 due to the operating loss."

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