South Korea’s top anti-trust watchdog has pledged to bring “irreversible, sustainable” changes to the country’s corporate landscape, in an effort to boost transparency and accountability at family-run conglomerates.
Asia’s fourth-largest economy has long been notorious for its opaque business practices and lax corporate governance — factors behind the “Korea Discount”, where local companies trade at lower valuations than their global peers.
The reform of big conglomerates — known as the chaebol — was a key election pledge by President Moon Jae-in, who appointed Kim Sang-jo as one of two corporate governance crusaders tasked with reining in the chaebol’s unchecked power.
“I will not be rushed to make quick progress but will never back away from my goal of making irreversible, sustainable changes in corporate Korea,” the 55-year-old Mr Kim told the Financial Times.
“Gradual but fundamental changes will be made in chaebol business practices through increased market pressure.”
The former corporate reform activist, nicknamed the “chaebol sniper” for his dogged pursuit of big business, heads the Korea Fair Trade Commission in charge of ferreting out unfair business practices.
Mr Kim, who has long railed against the excesses of South Korean business groups, is well aware of the illicit means through which the chaebol’s founding families increase their wealth and transfer management control to their children.
As such, he has targeted unfair intragroup deals — favouring affiliates owned by family members at the expense of third-party competitors — to curb the chaebol’s economic dominance. The KFTC has identified more than 10 Korean conglomerates engaging in such unfair intragroup deals.
“Some [chaebol] are still engaged in such bad old practices. We need to seek measures to prevent any loopholes,” he said.
For the next two months, the commission will also look into whether the chaebol are using their family-run charity foundations to retain control of their sprawling empires or for irregular family succession without paying inheritance taxes.
The agency will soon introduce a rule obliging newly spun-off chaebol affiliates to report business deals with their former parent groups to prevent family members and their relatives from taking unjust profits.
Early next month, Mr Kim plans to meet chief executives of the country’s five biggest conglomerates, which account for more than half of the country’s stock market value, to urge reforms. He already anticipates positive changes from several groups over their governance structures.
“We are already seeing some progress, for example, in their contract terms with primary and secondary vendors, but more reforms are needed in other business aspects as well,” he said.
Mr Kim said that the country was approaching a “turning point” in corporate governance with the chaebol’s ownership transfer to the third generation of their founding families, and noted that the role of Samsung’s billionaire heir should be redefined to fit the group’s global profile.
“It is not desirable for him to wield absolute control over the empire like his father did. Samsung is no longer a small business group that one man can control, no matter how competent he is,” said Mr Kim.
“He’d better become a board chairman in charge of group-wide co-ordination and external communication, rather than pursuing a CEO-style leadership. Then, his current hardship could prove to be a blessing in disguise for Samsung’s long-term future.”
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