High CEO Turnover Rate Worries Some

Sein, a Kosdaq-listed information and communication parts manufacturer, has already changed its CEO five times this year. Its CEOs were replaced three times in March only. Sein also changed its CEOS six times in 2005. The firm changed its CEOs 11 times in the past 19 months.

There are also many other Kosdaq-listed companies that change CEOs frequently. 604 CEOs of Kosdaq-listed companies were replaced in between 2005 and July 14, 2006. In other words, more than one CEO was switched per day in the period.

“If listed firms show such an unstable leadership, not only domestic investors but also foreign investors will eventually shun investment,” Bae Soo-han, a researcher at the LG Economic Research Institute, said.

There are also other firms that replace CEOs habitually. For instance, Seo Won I & B, a system integration company, changed its CEOs four times in 2005 and three times already in this year.

Keyeast, a movie content company whose largest stockholder is star actor Bae Yong-jun, changed its man in command five times, three times last year and twice this year.

Aim High Global, a semiconductor parts supplier-turned-entertainment company, replaced its CEO three times in eight days, on March 10, 14, and 17.

The problem is this CEO replacement has become a trend this year.

According to the Korea Exchange, the number of CEO replacements by KOSDAQ-listed companies is 246 as of July 14, 2006. It increased 38 cases (or 18.3 percent) compared to the same period last year of 208.

Lack of Long-term Vision-

Analysts say this is caused by some KOSDAQ-listed companies that are obsessed with short-term profits and lack long-term vision.

For example, if a company feels what it deals with is not good for making money, the company changes its business. A golf wear manufacture transforms itself to an entertainment company with a few public entertainers brought in. Another telecommunications equipment company invests 100 million won to become a biotechnology company. In this course, they change CEOs repeatedly.

NEOSIAN, which changed its CEO five times from last year, renamed its corporate name twice.

Shareholders of the companies turn a blind eye to this practice because usually stock prices shoot up in a short period of time because of speculators when corporate names and CEOs change.

Yet, this never lasts long. Stock prices soon plummet and small investors who naively poured their money suffer damage.

Because of poor performance, Sein was forced to suspend its share trading in March this year, and DaehanBio whose CEOs changed three times was kicked out of the stock market in April.

Experts point out that investment system and culture should be changed.

Choi Hyun-jae, researcher of Tong Yang Investment Bank, said “When companies which should be liquidated are brought back to life, they manage their businesses by replacing CEOs.” In other words, disqualified companies should be eliminated to dispel investors’ distrust toward stock market.

“Companies will not be able to continue these practices of changing CEOS if investors stop pouring their money in these companies,” said Hong Jung-hoon, business administration professor at Kookmin University. He also stressed that Investment environment where investors make their decisions based on corporate fundamentals should take roots.

Wan-Bae Lee roryrery@donga.com