🚨 Owner Risk: Management Risks and Corporate Value

Today Korean Social News | 2025.05.15

📌 Franchise Store Owners Face Sales Drop Due to Owner Risk... Some Consider Closing

💬 As controversies surrounding The Born Korea CEO Baek Jong-won spread, franchise store owners are suffering direct damage. Some owners are preparing to close their businesses due to plummeting sales, with a noticeable exodus of customers in their 20s and 30s. Concerns about owner risk are growing throughout the franchise industry.

Summary

• Owner risk refers to when inappropriate actions by company owners or executives negatively impact company value.
• The spread and impact of owner risk has increased due to social media and the internet.
• Owner risk seriously affects not just companies but also franchise owners, employees, and other stakeholders.

1️⃣ Definition

Owner risk refers to when a company owner or CEO's personal behavior or statements negatively impact the company's reputation and value. Simply put, it's when a company leader's mistakes harm the entire company.

This is an important business risk that can lead to decreased brand value, loss of customers, and falling sales.

💡 Why is this important?

• In today's society, company image and brand value are key factors for business success.
• With social media and the internet, inappropriate behavior by owners spreads quickly.
• Consumers consider not just products but also a company's values and ethics.
• Especially in franchise businesses, risks taken by the parent company's owner directly affect many franchise stores.

2️⃣ Types of Owner Risk and Their Impact

📕 Main Types

• Owner risk appears in various forms. The main types include:

  • Ethical problems: When illegal activities like embezzlement, tax evasion, or accounting fraud by management are exposed.
  • Human rights violations: When verbal abuse, workplace bullying, or sexual harassment becomes known.
  • Inappropriate statements: Discriminatory remarks or politically controversial statements on social media or in public.
  • Personal scandals: When an owner's personal scandals affect the company image.
  • Management failures: When poor decisions or overly ambitious business expansions cause significant losses.

• Owner risk can be classified by its causes. The main causes include:

  • Moral hazard: When owners abuse their power as the company grows.
  • Lack of communication: When problems arise due to poor communication within the company or with the public.
  • Poor governance: When there are no checks and balances to prevent an owner's unilateral actions.
  • Corporate culture issues: When a closed and authoritarian corporate culture prevails.

📕 Impact and Damage

• Owner risk seriously affects companies. Major impacts include:

  • Stock price drops: Public companies may see sharp stock price declines when owner risks emerge.
  • Decreased sales: Consumer boycotts or customer losses can reduce sales.
  • Talent drain: Talented employees may leave the company or it becomes harder to recruit new talent.
  • Lost business opportunities: Partnerships may be canceled and new business opportunities may decrease.
  • Legal penalties: In serious cases, legal punishment or increased regulations may follow.

• Franchise businesses suffer direct damage. Major damages include:

  • Decreased franchise sales: Franchise locations may see sharp sales drops due to parent company owner issues.
  • Decreased store value: The value of franchise locations may fall as brand value decreases.
  • Additional costs: Marketing costs to restore image may be passed on to franchise owners.
  • Risk of closure: In serious cases, franchise owners may have to consider closing their business.
  • Legal disputes: Legal conflicts may arise between the parent company and franchisees over compensation.

Key Characteristics of Owner Risk

1. Unpredictability: It's difficult to predict when or how it will occur.
2. Rapid spread: Problems spread very quickly through social media and the internet.
3. Long-lasting effects: Once damaged, a company's image takes a long time to recover.
4. Chain reaction: One problem can reveal other problems in a chain reaction.
5. Widespread stakeholder impact: It affects various stakeholders including shareholders, employees, franchise owners, and business partners.

3️⃣ Response Strategies and Case Studies

✅ Company Response Strategies

• Preventive measures for owner risk are necessary. Key prevention strategies include:

  • Transparent governance: Strengthen the independence of the board of directors and activate audit committees to check the owner's unilateral decisions.
  • Ethical management: Create a corporate ethics charter, conduct ethics training, and build whistleblower systems.
  • Improved communication: Diversify communication channels with internal and external stakeholders and formalize opinion gathering processes.
  • Strengthened social responsibility: Build a positive corporate image through Corporate Social Responsibility (CSR) activities.
  • Risk management systems: Continuously monitor and manage various risk factors including owner risk.

• Effective responses when owner risk occurs are important. Key response strategies include:

  • Prompt apology: Prevent the situation from worsening through acknowledging the problem and offering a sincere apology.
  • Holding responsible parties accountable: Identify clear responsibility and take appropriate measures.
  • Victim compensation: Prepare compensation plans for directly affected stakeholders.
  • Prevention measures: Create institutional safeguards to prevent similar problems from recurring.
  • Transparent communication: Openly share information and communicate even in crisis situations.

✅ Major Cases and Implications

• Several major owner risk cases have occurred in Korea. Representative cases include:

  • Airline "nut rage" incident: An owner's family member's abusive behavior severely damaged the company image and led to executive resignations.
  • Food company "fake eggs" controversy: A CEO's inappropriate comments led to consumer boycotts.
  • IT company sexual harassment case: Sexual harassment controversies involving a founder decreased company value.
  • Retail company workplace bullying controversy: Employee verbal abuse and bullying by the owner's family damaged brand image.
  • The Born Korea controversy: Recent controversies involving CEO Baek Jong-won have harmed franchise owners.

• International cases and their implications are worth examining. Major cases and lessons include:

  • US clothing company CEO's discriminatory remarks: Sales plummeted after a CEO made discriminatory comments about certain customer groups.
  • Global IT company founder's sexual harassment culture: A founder resigned after allowing a sexual harassment culture to develop.
  • Car company emissions cheating: Top executives led emissions test manipulation resulting in astronomical compensation payments.
  • International cases show that owner risk can occur in global companies, and quick, appropriate responses are crucial.
  • Especially important for crisis recovery are transparent communication, sincere apologies, and systematic improvements.

4️⃣ Related Terminology

🔎 Corporate Governance

• Corporate governance refers to a company's decision-making and control systems.
• Corporate Governance means the institutional mechanisms and processes for making and monitoring business-related decisions. It defines and coordinates relationships between various stakeholders including shareholders, executives, board members, and employees.
• Key elements of sound corporate governance include board independence and expertise, effective audit committee operations, appropriate executive compensation systems, shareholder rights protection, and transparency in information disclosure.
• To prevent owner risk, sound corporate governance with functioning checks and balances is essential. Particularly important are an independent board of directors and transparent decision-making processes that can check the unilateral decisions of owners or executives.

🔎 Reputation Risk

• Reputation risk refers to dangers that negatively impact a company's image or reputation.
• Reputation Risk means the risk of company value decreasing due to damage to the company's reputation or brand image. This can lead to consumer trust loss, investor withdrawal, and talented employee departures.
• Major causes of reputation risk include product quality issues, service failures, ethical problems, legal violations, inappropriate marketing, environmental pollution, and owner risk. In the digital age, negative information can spread quickly through social media, increasing reputation risk.
• To manage reputation risk, companies need proactive monitoring systems, crisis response manuals, transparent communication channels, and ethical management practices. Owner risk is one of the important causes of reputation risk, and systematic management is essential for a company's long-term success.

🔎 Franchise Risk

• Franchise risk refers to risk factors unique to franchise businesses.
• Franchise Risk means various risk factors that can arise in the relationship between a franchise headquarters and franchise stores. It includes negative impacts on franchise stores from headquarters management problems, brand value decline, increased competition, and market changes.
• Major types of franchise risk include brand risk (headquarters brand value decline), contract risk (unfair contract terms), operational risk (manual problems, quality degradation), market risk (increased competition, consumer preference changes), and owner risk (headquarters representative problems).
• Owner risk is particularly important in franchise businesses because headquarters owner problems immediately affect all franchise stores. Franchise owners can suffer damage from headquarters owner problems that are not their fault, and protective measures for this are often inadequate. Therefore, franchise owner protection through franchise business laws and risk management system construction is important.

5️⃣ Frequently Asked Questions (FAQ)

Q: How should franchise owners respond when owner risk occurs?

A: When owner risk occurs, franchise owners can respond as follows. First, accurate situation assessment is important. Check media reports and social media content, and confirm the headquarters' official position. Second, communicating with other franchise owners and seeking joint responses is effective. If there is a franchise owner association, use it actively. Third, prepare customer response plans. It's important to prepare how to respond to questions or concerns from customers visiting your store. Fourth, you can strengthen independent marketing activities. Local marketing or regular customer management strategies that emphasize store personality over brand can help. Fifth, seek legal expert advice in serious situations. Through contract review, you can check whether it's possible to claim damages from headquarters or terminate the contract. Finally, from a long-term perspective, consider alternatives such as brand changes or conversion to an independent store.

Q: As a consumer, is it okay to use products or services from companies where owner risk has occurred?

A: This is a matter of personal values and judgment. Here are some points to consider. First, understand the seriousness and nature of the problem. Consider whether it's a temporary mistake, a structural problem, and how serious it is legally and ethically. Second, look at the company's response. It's important to check whether there's a sincere apology and efforts to prevent recurrence, and whether appropriate compensation has been made to victims. Third, consider indirect victims. Especially in franchise cases, franchise owners or employees may be harmed by parent company owner problems. Consider the impact boycotts may have on them. Fourth, decide according to your ethical standards. Consumption can be seen as a kind of vote, and ethical consumption can lead to corporate change. Fifth, look for alternatives. If there are other companies offering similar products or services, using them is one option. The important thing is to make choices that match your values based on sufficient information.