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Orion chairman raked in dividends

July 03,2014
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At noon every Monday, Wednesday and Friday, a group of more than 50 people gather at the front entrance of Sports Toto’s headquarters in Gangnam District, southern Seoul, demanding that the 59-year-old chairman of Orion Group, Dam Chul-gon, deliver an apology.

Orion, famous for the classic confection Choco Pie, previously ran the pari-mutuel betting service Sports Toto, which was commissioned by the Korea Sports Promotion Foundation in 2003. In the last decade, Sports Toto was able to attract 4.5 trillion won ($4.46 billion) in betting revenue.

But Orion is no longer the operator of Sports Toto since Dam was convicted of embezzlement by the Supreme Court last year, and the foundation began looking for a new partner.

If it wasn’t for Dam’s conviction, Orion would have had the right to run the betting service until September 2017.

Because the company might change hands, around 260 employees of Sports Toto may lose their jobs.

“We actively helped Orion because its executives promised that once Orion wins back managing rights the jobs will naturally be protected,” said Kim In-soo, head of Sports Toto’s labor union.

“If we can’t keep our jobs, at least Orion should show the minimum sincerity by making justified compensation through early retirement payments,” Kim said. “It shouldn’t end with Chairman Dam taking his cut.”

This is not the first time Dam has been accused of being greedy while leaving his own people holding the bag. According to a corporate filing by Orion to the Financial Supervisory Service (FSS), Dam pocked nearly 5.4 billion won in pay from Orion Confectionery in 2013.

This made him the best paid executive in the food and beverage industry, outranking Lotte Group Chairman Shin Dong-bin, who owns a majority stake of Lotte Confectionery. Shin took home 4.4 billion won in 2013.

Even Dam’s 58-year-old wife, Lee Hwa-kyung, took home a paycheck of nearly 4.4 billion won in 2013.

The big paychecks came at a time when Orion Confectionery’s operating profit last year fell 2.88 percent. The average executive pay in the company rose 54.9 percent during the same period.

Additionally, Dam’s two children received 4.5 billion won in Orion stock dividends last year.

All of these payments were made despite the chairman being sentenced by the Supreme Court in April 2013 to a three-year prison term and five years of probation for embezzling 30 billion won of the company’s money.

Dam was indicted in June 2011 for embezzling 22.6 billion won from the company to purchase high-end artworks that were displayed at his home, while 7.4 billion won was spent on personal use.

“It’s not uncommon for an owner of a company to return his paycheck to the company when he is involved in a criminal case or when the company struggles,” said an official at a business organization who requested anonymity. “It’s hard to understand the decisions at Orion.”

The issue of his excessive compensation surfaced recently when it turned out that iPak, a non-listed company that Dam owns a 53.3 percent stake in, has paid dividends that exceed its own profit.

According to an audit filed by the company to the FSS at the end of March, Dam received a dividend payout worth 15 billion won last year from a company with operating profit of only 800 million won and net profit of 2.5 billion won. The company’s operating profit last year shrunk 50 percent compared to the previous year.

IPak supplies packaging for confectionery products. Out of 40.3 billion won in revenue last year, 80 percent, or 32.4 billion won, was made from supplying Orion.

“Orion is giving all the work and in return it is compensating Dam through dividends,” said Kim Han-gi, policy director at Citizens’ Coalition for Economic Justice. “It is a typical example of a majority stakeholder profiteering because there is a lack of monitoring from within or without of an unlisted company.”

The prosecutors from a previous embezzlement investigation into Dam believe that Orion Group, after taking over iPak in 1988, has been running it as a pseudo affiliate from which it can extract cash.

Dam received more than 20 billion won in iPak dividends in 2011.

“The financial authorities didn’t take any action against the high dividend pay,” said Kwon Young-june, a Kyung Hee University professor.

Orion officials said it was a legitimate dividend paid through the company’s reserves.

BY MOON BYUNG-JOO [ojlee82@joongang.co.kr]