One of South Korea's top companies has decisively defeated a bid by a foreign shareholder to oust its chairman - and in the process exposed a growing chasm between domestic and foreign investors in Asia's third-largest economy. Shareholders of SK Corp yesterday re-elected Chey Tae-won, the nephew of the conglomerate's founder, as chairman for a second three-year term. Mr Chey garnered the support of 55.3 per cent of the company's shareholders at the much-anticipated annual general meeting. James Fitter, the chief executive of Sovereign Asset Management - the private equity fund leading the campaign to oust Mr Chey - called the vote a 'missed opportunity'. 'The mere fact that shareholders are so accepting of a convicted criminal working in an executive capacity in Korea is one of the major reasons the Korean equity market trades at a 45 per cent discount compared to its Asian peers,' Mr Fitter said in a statement. With the vote over and Sovereign rebuffed yet again, SK - whose shares fell 1.3 per cent yesterday - is now exposed to a possible divestment by the Dubai-based fund. However, SK was 'delighted' by the vote. 'With respect to the re-election of chairman Chey, we are especially delighted to see significant support from foreign shareholders, not to mention the overwhelming endorsement from domestic shareholders,' said Lee Sung-hoon, the head of SK's investor relations. Mr Chey, who did not attend the meeting, said in a statement: 'The support for management our shareholders have shown places us in a strong position to push forward.' Sovereign, owned by the Chandler brothers of New Zealand, has been trying to remove the 44-year-old chairman of Asia's largest oil refiner for the past two years, arguing that as a convicted criminal he is unfit to serve even though the firm turned in record profits last year. Mr Chey, who was convicted of a US$1.2 billion fraud at affiliate SK Networks in 2003, served seven months of a three-year jail term before being released on bail, pending an appeal, and reinstated at SK. The firm is 54 per cent owned by foreign shareholders. Sovereign, SK's largest single shareholder, holds 14.9 per cent. Mr Chey holds a 0.9 per cent stake, but he has the support of SK affiliates. At the previous annual meeting, Sovereign proposed changing the company's articles of incorporation to prevent anyone with a criminal conviction from serving as an executive. The motion was voted down. In November last year, Sovereign's call for an extraordinary shareholders' meeting to vote on Mr Chey's fitness to serve as chairman was rejected by SK's board. Sovereign took the decision to court, but the appeal was thrown out in December. The fund's aggressive shareholder activism - unprecedented in Korea - has sparked a nationalistic backlash with the media and the general public rallying around the family-run conglomerates. At yesterday's meeting, Sovereign's chief operating officer David Mapplebeck said SK paid lower dividends and was undervalued compared with competitor S-Oil. 'Common sense tells us it makes no sense to put a man convicted of defrauding his shareholders back in charge,' Mr Mapplebeck said. Korean shareholders responded with outrage. Korean courts, not foreign investors, should judge Mr Chey's guilt, said one. One market watcher expressed concern that Korean judges might become reluctant to convict local executives of corporate crimes given the issue Sovereign had made of Mr Chey's conviction. Although Sovereign cited a CSFB report that the retention of Mr Chey wiped 20,000 won ($155) off SK Corp's share price, others have said SK had aggressively improved its governance. Moody's has lauded it for increasing the number of outside directors and enhancing the independence of its board. In a report this week, Merrill Lynch said the continuing tension between Sovereign and SK would benefit shareholders. SK has acknowledged Mr Chey's past, but says his book-cooking was a result of legacy problems when he took over the company. It also noted he led SK into lucrative production and exploration projects, pointing out the refiner enjoyed a 141 per cent increase in operating profit last year. 'The oil refining business is benefiting from oil price [rises], but SK's corporate governance is also improving rapidly,' said Paek Kil-won, a petrochemicals analyst at Good Morning Shinhan Securities. 'I think Chey has realised his mistakes and is focusing on the oil refining business, and the exploration and production business, which will be a cash cow - its margins are high.' SK shares have risen sixfold since Sovereign bought into the company in April 2003, giving it an almost US$1 billion windfall. But Sovereign is keeping its cards close to its chest. Hong Kong spokesman Jonathon Wharton said the fund's policy was not to comment on future moves. Officials at SK were equally discreet. When asked if SK would buy shares if Sovereign divested, Mr Lee said: 'Our principle is not to respond to speculative comment.'