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| Kang Jung-seok, Dong-A Socio Holdings chairman |
Dong-A Socio Group is facing the biggest crisis in its 85-year history as Chairman Kang Jung-seok was put behind bars on charges of offering kickbacks to doctors and evading taxes.
It is feared that the chairman's legal trouble could tarnish the corporate image of the country's largest pharmaceutical company and adversely affect its business with hospitals and other healthcare providers.
The Busan District Court issued an arrest warrant this week for Kang, saying there is enough evidence to charge him and he may destroy evidence if he is not detained.
The prosecution asked the court to allow detaining the chairman, claiming he orchestrated Dong-A's illicit scheme to create a slush fund to bribe doctors and dodged paying taxes.
According to the investigators, Kang is suspected of having embezzled 70 billion won ($62 million) from the company between 2007 and 2013, and offering 5.5 billion won in kickbacks to doctors in return for prescribing its products. He also allegedly evaded paying 17 billion won in taxes.
But he has been denying the charges, saying several salespeople went rogue to bolster their sales performance. Kang also blamed wholesale dealers who broker business deals between Dong-A and hospitals.
"Chairman Kang and his lawyers will do everything to clear all the charges against him during the trial," a Dong-A Socio Holdings official said. "The court's decision to detain Kang doesn't prove anything."
In response to growing concerns over the possible adverse effects of Kang's absence, the company said it will mobilize all available resources to run the business as usual.
"Since March 2013 when the group adopted a holding company structure, professional CEOs have independently been running each unit," the official said.
An industry analyst, who declined to be named, said the court's decision to detain Kang on alleged provision of kickbacks has surprised many pharmaceutical industry officials.
"We have to wait and see whether the court finds Kang guilty or not," the analyst said. "I don't think his absence will negatively affect Dong-A's day-to-day operations. But the legal trouble will certainly tarnish the firm's image and may deprive them of new business opportunities."
Kang became Dong-A Socio Holdings' chairman in January, replacing his 87-year-old father Kang Shin-ho who led the company for 35 years.
After graduating from Chung-Ang University, he joined the pharmaceutical firm in 1989 and served in various key posts. In 2013, he was promoted to CEO of Dong-A Socio Holdings and then to the vice chairman two years later.
The holding firm controls two flagship units: Dong-A Pharmaceuticals and Dong-A ST. The former produces over the counter, non-prescription drugs and health food items, while the latter deals with prescription drugs and medical equipment.
Founded in 1932, Dong-A Socio Group earned 726.2 billion won in sales last year with a 76 billion won operating profit.
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