[Invest&Law]Was the 23.8 Billion Won Compensation for DB Owner Father and Son Appropriate? Second Trial Begins Next Month

Is the Exercise of Controlling Shareholders' Authority Considered 'Work' for the Company?

First Trial Resulted in Loss for Minority Shareholders

The appellate hearing for the shareholder derivative lawsuit concerning alleged excessive compensation received by Kim Junki, Founding Chairman of DB Group, and Kim Namho, Honorary Chairman of DB Group, is scheduled to take place next month.

According to legal sources on August 12, the Civil Division 2 of the Incheon District Branch of the Seoul High Court (Presiding Judge Jung Yunha) has scheduled the first appellate hearing for September 17 at 10 a.m. The case pertains to the damages claim brought by civic groups, including the Economic Reform Alliance, and minority shareholders of DB HiTek, against Chairman Kim, his son, and the management of DB HiTek.

"Three to Six Times Higher Compensation Than Registered Directors"—Minority Shareholder Concerns

Previously, Chairman Kim and his son, the controlling shareholders of DB HiTek, had served as non-registered executives from 2021 to 2024, receiving a total compensation of over 23.8 billion won during that period. The Founding Chairman Kim received about 11.826 billion won, while Honorary Chairman Kim received approximately 12.07 billion won. In March last year, minority shareholders filed a lawsuit, stating, "The amount received as compensation should be reimbursed."

During the trial, the minority shareholders argued, "While exerting influence over management, the non-registered executives, who do not bear legal responsibility, received compensation three to six times higher than the total compensation of in-house directors. This amount is equivalent to 16% of the company's total dividends distributed to shareholders."

On the other hand, the company responded, "Founding Chairman Kim presided over meetings attended by key executives and was involved in new executive recruitment, the composition of the board of directors, as well as organization and workforce management." They added, "Honorary Chairman Kim was also briefed on business plans and sales strategies and participated in executive appointments and organizational restructuring."

First Trial Found Compensation 'Lawful'—"No Substantial Management Risk"

The court of the first instance did not side with the minority shareholders. It found that Chairman Kim and his son appeared to have performed actual work for the company, and it could not be concluded that the compensation provided was excessive relative to their roles. The court also stated there was no legal basis for requiring the approval of the general shareholders' meeting for compensation to non-registered executives.

The first-instance court noted, "It cannot be ruled out that Chairman Kim and his son made key management decisions or supervised and directed matters relating to company business, and therefore, it cannot be definitively said that they did not perform any work simply because no visible work results were found."

Regarding the excessive compensation controversy, the court stated, "Given the company's capital, sales, operating profit, and net income, it is difficult to see that the paid compensation caused any significant management risk to the company. It also does not appear that the compensation reached a level that would clearly amount to damage or waste of company assets or violate the principle of capital adequacy."

The court also rejected the procedural illegality claims. The judgment clarified, "Simply because they were paid substantial compensation or could be seen as giving directions on business execution does not by itself create a legal obligation for shareholder approval of their compensation."

Minority Shareholders Appeal, Entering Round Two

The minority shareholders did not accept the first-instance verdict and filed an appeal. At the time, a representative from the Economic Reform Alliance stated, "The court did not assess at all the appropriateness of the compensation paid to the controlling shareholders and instead accepted the company’s formalistic arguments as they were. The work cited as having been performed by the two individuals was merely the exercise of authority normally held by controlling shareholders, and in fact, they concurrently held executive positions at DB Inc., which effectively functions as a holding company, thereby receiving overlapping compensation."

The core issue in the appeal is expected to go beyond whether the compensation provided to Chairman Kim and his son was excessive for their duties. Instead, the question is whether the personnel, governance, and investment-related authority they exercised can be regarded as separate 'work' provided to DB HiTek. In particular, the appellate court is also expected to revisit whether a controlling shareholder who can influence the appointment and evaluation of the management that decides their own compensation should be considered on the same footing as a typical non-registered executive.

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