Forget Machiavelli, or Game of Thrones. When it comes to staying in power, South Korea’s richest business clans have the game plan down.
There is the charity maneuver, in which family members park their stakes in their business empires in philanthropic nonprofits, letting them keep control without paying heavy taxes.
There is the new company maneuver, in which they create new firms that strike lucrative and friendly business deals with the others they control.
And then there is old-fashioned corporate engineering, in which they merge arms of their empires together to consolidate power, even as other shareholders complain.
With South Korea’s biggest business empire, Samsung, caught up in a nationwide political scandal, a new generation of South Korean leaders has vowed to rip up that playbook.
Major candidates in Tuesday’s election for president have said they would clamp down on South Korea’s family-controlled business empires, called chaebol, which dominate the country’s economy and have amassed immense political power.
“Chaebol family control as we know it could end with this generation,” said Kim Woo-chan, a professor of finance at Seoul-based Korea University Business School, pointing to an intensifying backlash against inherited wealth. “An opportunity as good as this one is unprecedented.”
However, that could be easier said than done, South Korean officials and experts have said.
While the public blames the chaebol for an embarrassing series of political and business scandals and for holding back the country’s once surging economy, they continue to hold considerable political power. Their controlling families have also proved adept at finding ways to keep control, even as they face increasing challenges from inheritance taxes, unhappy outside investors and their own family squabbling.
“Leaders, markets — they don’t change overnight,” said Rhyu Sang-young, a professor of political economy at Yonsei University in Seoul. “Every culture has a strong legacy, inertia. It takes time.”
South Korean President Moon Jae-in, sworn in yesterday, has vowed to stop families from using nonprofit foundations, complicated shareholding plans and other methods to keep control of businesses. One of his main advisers is Kim Sang-jo, an economist known for hawkish views on the chaebol.
However, the South Korean Democratic Party, led by Moon, holds only 119 seats in the 300-member South Korean National Assembly. The Democrats would find it hard to get support from rival parties in passing chaebol reform bills through a fractured legislature, where a pro-business lobby also remains strong.
Passing a bill would take many months of wrangling.
Moon has also promised to make prosecutors more independent and to make it more difficult for a president to abuse the power of the office, limiting the ability of chaebol to collude with officials and escape justice. However, such reforms would likely require a revision of the constitution, which would be very difficult to pull off given the nation’s fractious politics.
Mounting distrust of the chaebol culminated earlier this year in the arrest and indictment of Jay Y. Lee, Samsung’s de facto chief, on bribery and other charges related to a scandal that ousted South Korea’s president and led to Tuesday’s election.
Lee is a member of the third generation of a family that controls a business empire that makes its famous mobile phones; builds the world’s tallest skyscrapers — an affiliate constructed the Burj Khalifa in Dubai; operates hospitals, hotels and theme parks; and even offers credit cards.
However, frustration with the chaebol has been building for years. Critics blame the conglomerates for a number of social ills, including corruption, inequality and the crowding out of smaller and potentially more innovative businesses.
Shares in the chaebol trade at lower prices than they otherwise would — the so-called “Korea Discount” — because outside investors fear founding families will shortchange them.
Family shenanigans have not helped perceptions.
There was Cho Hyun-ah, daughter of the chairman of Korean Air’s chaebol, who resigned from an executive position at the carrier in 2014 over the infamous “nut rage” incident, in which she forced an airplane to return to the gate when she was unhappy with the way a flight attendant served her macadamia nuts.
There was Chey Chul-won, a member of the family that runs SK Group, who was convicted of beating a protester with a baseball bat.
Then there was Chung Il-seon, a Hyundai heir who runs the group’s steelmaking affiliate, who was fined by a court for abusing a string of chauffeurs.
Over the long term, many chaebol families have seen their grip on their empires slip. Often, the families have only themselves to blame. A succession fight between siblings broke up Hyundai in the early 2000s.
Lotte, another chaebol, went through an ugly war between brothers in 2015.
The winner, Shin Dong-bin, might have seized a poisoned chalice: He has also been indicted on charges of bribing South Korea’s recently deposed president, Park Geun-hye.
They face other challenges — in particular, taxes. Perhaps surprisingly in a country where dynasties have persisted, inheritance taxes in South Korea are high — for the wealthy, 50 percent or more.
That is where the power preservation playbook comes in.
One solution has been to transfer stakes in chaebol companies to family-controlled charities. Four foundations controlled by the Lee family hold billions of dollars worth of shares in key Samsung subsidiaries, including the smartphone maker.
Another option is to ensure that chaebol heirs get rich before their parents die. That can be accomplished by setting up small companies under an heir’s control, then making them bigger using the family’s business connections.
Critics have said that is what happened at Hyundai Motor, where Chung Eui-sun, the son of the automaker’s chairman, invested in a small logistics company in 2001.
The company, now called Hyundai Glovis, quickly secured lucrative contracts with Hyundai affiliates. Within a few years Hyundai Glovis and Chung were worth billions.
A Hyundai spokeswoman declined to comment on the arrangement.
Lee, who is technically vice chairman, but leads Samsung on behalf of his ill father, also benefited from maneuvers designed to preserve family power. Starting in 1996, when Lee was just 28, Samsung companies began issuing him cut-price bonds that he was later able to convert into stock, allowing him to accumulate valuable ownership stakes at a fraction of the market cost.
His father, Lee Kun-hee, was ultimately convicted of breach of trust in connection with the deals — although he was later pardoned and Jay Lee was allowed to keep his shares.
Another maneuver is at the heart of the charges against him. The merger of two Samsung companies in 2015 made Jay Lee the dominant shareholder in a crucial part of the Samsung empire. Earlier this year, he was accused of bribing Park and others to push another major shareholder, the government’s pension system, to approve the deal.
Jay Lee denies the charges and has said he was a victim of extortion.
Outside shareholders, who could be a point of pressure, still do not have a big voice. Many chaebol companies have long been publicly traded, but their size and success has drawn outside investors who clamor for a greater say and better governance.
In the case of Samsung, US hedge fund Elliott Associates objected to the deal that led to the bribery charges against Jay Lee. However, the hedge fund failed to block it.
“South Korea has to promote the role of the institutional investor,” Rhyu said, adding that the pension service lacked a culture of independence. “The problem is corporate governance.”
In the legislature, political parties have sponsored several bills that would make chaebol corporate governance more transparent and make it harder for their chairmen to help enrich their children through dubious business transactions.
One idea pushed by Moon is to introduce so-called cumulative voting to make it easier for candidates supported by minority shareholders to get a board seat.
However, any campaign to overhaul the chaebol would be vulnerable to overall economics. If the economy slows, politicians might fear that constraining the chaebol would hurt business activity.
“There are people who recognize the problem, but also a lot who don’t,” Kim Woo-chan said. “There are plenty of people who think, yes, there has to be an owner family involved.”
On Sept. 27, 2002, the Democratic Republic of Timor-Leste (East Timor) joined the UN to become its 191st member. Since then, two other nations have joined, Montenegro on June 28, 2006, and South Sudan on July 14, 2011. The combined total of the populations of these three nations is just more than half that of Taiwan’s 23.7 million people. East Timor has 1.3 million, Montenegro has slightly more than half a million and South Sudan has 10.9 million. They all are members of the UN, yet much more populous Taiwan is denied membership. Of the three, East Timor, as a Southeast Asian
Taiwan has for decades singlehandedly borne the brunt of a revanchist, ultra-nationalist China — until now. Ever since Australian Prime Minister Scott Morrison had the temerity to call for a transparent, international investigation into the origins of the COVID-19 pandemic, Beijing has been turning the screws on Canberra. This has included unleashing aggressive “wolf warrior” diplomats to intimidate Australian policymakers, enacting punitive tariffs on its exports, and threatening an embargo on Chinese tourists and students to the nation. A tense situation became more serious on June 19 after Morrison revealed that a “sophisticated state-based actor” — read: China — had launched a
There have been media reports that the Chinese People’s Liberation Army (PLA) plans to hold military exercises in August to simulate seizing the Pratas Islands (Dongsha Islands, 東沙群島) in the South China Sea. In the past, only Coast Guard Administration (CGA) personnel have been stationed there, but the Ministry of National Defense has dispatched the Republic of China Marine Corps to the islands, nominally for “ex-situ training,” to prevent a Chinese attack under the guise of military drills. The move is only a temporary measure and not sufficiently proactive. Instead, the government should officially declare sovereignty over the islands and station troops
Hsiao Bi-khim (蕭美琴) is to be Taiwan’s next representative to the US. Hsiao is well versed in international affairs and Taiwan-US relations. In her days as a student in the US, she was a member of the Formosan Association for Public Affairs (FAPA) and served as chief executive of the Democratic Progressive Party’s US mission. She is familiar with a broad spectrum of Taiwanese affairs in the US. FAPA hopes that Hsiao, after taking up her new post, would continue to deepen and normalize relations between Taiwan and the US, and that she would try to get a free-trade agreement