KleanNara's old guard vs. new direction: management clash leaves embers burning

The failed attempt to bring KleanNara adviser Choi Byung-min back to management reflects a deeper clash between two competing visions: restoring the competitiveness of the company's core paper business versus pushing ahead with expansion into new businesses. The board, which had backed Choi's return, is understood to have prioritized a recovery in the paper division's profitability, while Chairman Choi Hyun-su has focused on building out the household goods segment.

The pivotal moment will be the annual shareholders meeting in March. All board members face term expirations then, leaving open the possibility of another proxy battle over control of the company. The underlying vulnerability is the chairman's relatively thin ownership stake.

According to KleanNara's disclosures filed with the Financial Supervisory Service's DART system, the company's paper division (PS) posted sales of 126.99 billion won ($94.6 million) in the first half of this year, down about 1.3 percent from the same period last year. The division recorded an operating loss of 5.72 billion won — an improvement from the roughly 11.4 billion won loss a year earlier, but still in the red. The household goods division (HL), by contrast, posted sales of 133.76 billion won, up about 6.7 percent year on year, with operating profit rising to 2.26 billion won.

The divergence in performance between the two divisions illustrates the management challenge KleanNara faces. The PS division handles the company's core paper business, producing packaging materials such as white board and food-grade paper. The HL division covers household consumables including toilet paper, diapers and sanitary products. In the first half of this year, HL sales overtook those of the PS division, and the gap in profitability widened further.

Chairman Choi has been expanding into new markets on the back of the household goods business. KleanNara launched laundry capsule detergent and dishwasher detergent this year and entered the pet food market through its pet brand Popomong. The company has also been growing its business-to-business hygiene products operations.

The slow recovery of the paper division remains the central challenge. KleanNara posted a consolidated operating loss of 22.6 billion won last year. In the first half of this year, the operating loss narrowed to around 3.3 billion won, but the company has yet to return to profitability. With the paper division's losses continuing to weigh on overall earnings, the company must simultaneously invest in new businesses while improving returns from its existing facilities.

Against this backdrop, an extraordinary shareholders meeting held Wednesday rejected a proposal to appoint Choi Byung-min as an inside director. Choi had long led KleanNara's paper business, and board members are said to have argued that his experience was needed to restore the division's competitiveness. The proposal failed to clear the shareholder vote, however, leaving the management structure centered on Chairman Choi intact.

Personnel changes within the management team have also drawn attention. Ha Bo-young, the former executive director who headed the HL division and is married to Vice President Choi Yun-su — the chairman's younger sister — recently left the company. Ha, who previously worked at LG H&H and Cosmax, had overseen marketing and operations for the household goods business. The departure came even as the HL division had just posted a first-half profit.

The role of Chief Operating Officer Choi Jeong-gyu is also drawing scrutiny. Choi, the chairman's younger brother, oversees both the PS and HL divisions and sits at the center of the company's management structure. Choi Jeong-gyu is understood to have supported the proposal to bring Choi Byung-min back to the board. While Chairman Choi holds overall responsibility as chief executive, the COO plays a significant role in divisional operations and key decision-making.

The ownership structure presents another variable for the company's future direction. As of the end of June, Chairman Choi Hyun-su held a 7.70 percent stake in KleanNara's common shares. COO Choi Jeong-gyu held 16.12 percent, the largest share among family members. Vice President Choi Yun-su held 7.70 percent, adviser Choi Byung-min 3.46 percent, and Choi Byung-min's spouse Gu Mi-jeong 4.96 percent. Combined with nine related parties, COO Choi and his associates control 40.03 percent.

Heesung Electronics' 20.62 percent stake also warrants attention. Heesung Electronics is an affiliate of Heesung Group, led by Chairman Koo Bon-neung, the older brother of Gu Mi-jeong. KleanNara's largest shareholder changed to Heesung Electronics in 2009, then shifted back to COO Choi Jeong-gyu and related parties in 2014. Heesung Electronics currently holds the largest stake of any single shareholder.

The annual shareholders meeting in March could prove a turning point for KleanNara's management structure. According to the company's semiannual report, four of the five board members — including Chairman Choi Hyun-su, COO Choi Jeong-gyu, former CEO Lee Dong-yeol and outside director Kim Young-gi — are due to see their terms expire in March. While director reappointments at term expiry are routine, the back-to-back failure of Choi Byung-min's return and the resignation of CEO Lee have focused attention on whether the existing board will be reappointed and who may be nominated as new candidates.

Particularly closely watched will be the role Heesung Electronics — with its 20.62 percent stake — plays in selecting a successor to former CEO Lee. With Chairman Choi holding only 7.70 percent against COO Choi's 16.12 percent, the voting decisions of major shareholders could reshape the board's composition.