Chaebol bashing

Time to discuss roadmap for conglomerates

Reforming the country’s large business conglomerates, known as the chaebol, is emerging as a hot-button issue ahead of the presidential election slated for December. As the chaebol system is cited as the chief culprit behind worsening economic polarization, few would dare to challenge the reform drive. What’s most important, however, is its content.

The main opposition Democratic United Party (DUP) Monday proposed nine bills to reform the chaebol’s business practices, saying it would transform the current “chaebol privileged economy’’ into an “economy oriented for people’s livelihood’’ by easing the concentration of economic power and rectifying the unfair trading order.

On corporate governance, the DUP proposes bringing back the equity investment ceiling system that would ban the top 10 business groups from investing more than 30 percent of net assets in other companies and prohibit circular shareholding. The package also includes tightening rules separating industrial and financial capital, slapping heavier income taxes on the rich and limiting amnesty for tycoons who break the law.

The ruling Saenuri Party is jumping on the bandwagon to lash out at the family-run conglomerates but its reform plan is somewhat different from the DUP’s. Specifically, the governing party opposes reintroducing the equity investment ceiling system and banning circular shareholding, dismissing the DUP’s plan as half-baked populist economic democratization schemes.

True, the chaebol should be blamed for their outdated and ugly business practices. They often resort to illicit means when transferring wealth to their children or siblings and kick out mom-and-pop stores and small bakeries from neighborhoods. Their sprawling expansion accelerated during the Lee Myung-bak administration, resulting in the top 10 chaebol’s turnover reaching 77 percent of gross domestic product. Even worse is their empirical management system in which they control tens of subsidiaries with equity stakes of less than 1 percent.

However, given that the conglomerates play a key role in leading Korea Inc., too much pressure from political parties as well as from the government could dent their economic vitality by infringing upon their creativity and self-autonomy. Chaebol bashing also runs the risk of dampening corporate activity, dealing a fatal blow to investment and job creation.

Worth considering is that the latest economic democratization drive that envisions bringing in broad-based changes to corporate governance structures may expose well-performing domestic businesses to the danger of falling victim to hostile takeovers. The business community also claims that the conglomerates, unlike in foreign countries where there are various tools to protect managerial rights, are vulnerable to merger and acquisition attempts.

Worst of all is that the parties’ current commitment to reforming the chaebol could prove to be nothing more than a tactic to attract voters critical of the conservative Lee administration ahead of the upcoming presidential poll in December. While the main opposition party says its plan doesn’t surmise the forcible disintegration of the chaebol, now might be the right time for Korea to discuss how to deal with the chaebol system with a long-term perspective. It would be desirable through this process to draw a precise policy roadmap for the chaebol. <The Korea Times>

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