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Wed, Dec 29, 2004 - Page 12 News List

Regulator details how chaebol retain influence


South Korea's fair trade watchdog revealed yesterday a detailed picture of how the founding families of large conglomerates maintain their grip on their empires despite their relatively small direct holdings.

The move, which sparked angry protests from businesses, came at a time when large conglomerates, known as chaebol, have been clamoring for the removal of various regulations, including a ban on using more than 25 percent of their net worth to invest in other companies.

The Fair Trade Commission (FTC) published on its Web site (www.ftc.go.kr) information on how family patriarchs and their relatives control chaebol through a complicated system of cross shareholdings.

"Despite their small [direct] share holdings, the heads [of the chaebol] and their relatives are able to control all the group units by using the stakes mutually held by group affiliates," the FTC said in a statement.

These affiliates are interconnected in a complicated nexus of cross holdings, which in turn are controlled by units dominated by chaebol heads.

As of April 1, the average directly owned equity stake held by chairmen of the country's 36 largest chaebol with assets of 2 trillion won (US$1.9 billion) or more was a mere 1.95 percent, the FTC said.

Their relatives held 2.66 percent and group subsidiaries owned another 41.71 percent, while treasury shares and stakes held by executives accounted for another 2.76 percent.

Combined, the chaebol heads can call on an average 49.08 percent stake controlled by friendly shareholders.

Of the 36 chaebol, equity stakes held by the heads of the top 13 conglomerates with assets in excess of 5 trillion won (US$4.8 billion) were even lower, with each chairman holding an average 1.48 percent.

The FTC said chaebol heads and their families did not even own a single stake in 469 companies out of a total of 781 affiliates listed as part of the largest 36 chaebol.

Instead, they control the 469 firms indirectly through cross-invested affiliates.

"This means that chaebol heads and their kin wield much larger influence over their businesses than should be allowed by their equity stakes," said Professor Kim Woo-Chan of the state-financed Korea Development Institute.

The FTC said the disclosure of the chaebol ownership structures was aimed to help boost market "oversight" and support investors by providing them with "transparent informations on corporate governance."

For their part, the chaebol have been urging the government to ease regulations on them, citing the rules as a big obstacle to investment at a time when the economy is slowing.

The Federation of Korean Industries and the Korean Chamber of Commerce and Industry reacted angrily to the FTC move, accusing the government of using "scare tactics" to force chaebol to improve corporate governance.

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