Resolving Chaebol Inheritance Issues the Right Way

The Seoul High Court recently made a provisional ruling for Samsung SDS to suspend a decision to issue a large amount of Bonds with Warranty (BW) for the family of Lee Gun-hee, the chairman of Samsung. The court explained that "it is illegal to issue BWs at extremely low prices compared to their market value without special approval from the shareholders." It was a reversal of the former decision that the "issuance of BW is legally flawless." Therefore, the latter court decision will influence greatly the future developments of this lawsuit. Moreover, there will be further dispute and debate on the way legal loopholes are used to pass down inheritances.

The recent crisis at Samsung SDS will significantly impact the debates on the legality of transferring wealth through BWs and Convertible Bonds (CB), which has increased recently. Furthermore, it will affect the attitude and practice of wealthy people with regard to inheritance. Therefore, the court must strictly evaluate the legality and main problematic points of the debates, fundamentally based on the law and regulations, in order to provide a clear interpretation which leaves no inconsistencies. It is important for the court to look for a balance between the rights of small shareholders, public opinion which demands chaebol morality, and the blind spots in current laws and regulations.

Moreover, chaebols must reconsider themselves in the light of public opinion based on this incident. The government must be cautioned against stirring antagonism toward the 'bourgeois' by bashing chaebols based on public sentiment and populism.

It is unreasonable not to allow the chaebols to try to reduce tax payments. It is never possible to emphasize only morality to the businessmen, who are 'ready to step into hell, if there is opportunity to earn money.' However, it is problematic when internationally renowned domestic companies continue to cause debate and conflict by maximizing inheritance through legal loopholes. We must take a 'fair and square' attitude to the law. We must do our best to establish an open and aboveboard atmosphere before complaining that Korean society does not respect businessmen as in other foreign countries. Samsung insisted that "the stock price in February 1999, when we decided to issue BWs, was only one-tenth of the current price. Therefore, it was not a special privilege." However, Samsung has been in similar disputes such as those regarding S-1 Corporation and Everland, and its arguments no longer appear valid enough to win them support.

In addition, modification of the laws and regulation is urgently needed in order to prohibit any possible disputes in similar spheres in the future. Because of the institutional inertia, citizens' groups have to appeal to the law in order to remedy the imperfect aspects of laws and regulations. Therefore, the government must revise the relevant laws open to dispute in order to prove itself capable of resolving national turmoil within the framework of the law, rather than depending on pushing morality and resorting to emotional methods.

by Kim Tae-jin