Wresting control from the puppeteersKim Chong-in coined the term “economic democratization,” which has become a buzzword for fixing the country’s economic structural weaknesses and inequalities, mainly by targeting the mighty family-owned business groups. Kim is head of the People’s Happiness Committee, which is in charge of concocting economic planks for Saenuri Party presidential candidate Park Geun-hye.
Kim recently unveiled his greatest work yet: Park’s campaign platform on economic reform.
The core of the program is a law on conglomerates. It targets the founding owners of chaebol, who run their empires of subsidiaries despite holding only small stakes in them. It is based on the belief that the chief executive of a business group has to stand at the forefront of management and shoulder the responsibility when things go wrong. As such, the law aims to bring chaebol owners under greater legal scrutiny.
Kim aims to make sure the owners do not get away with any wrongdoing. He is proposing the institutionalization of civilian juries to give the people the power of sentencing for cases involving economic and corporate-related crimes. He may primarily be targeting group owners and their hierarchical family members, who usually get slap-on-the-wrist rulings or suspended sentences. But the law he is putting forth would ensure that none is pardoned or avoids jail sentences if found guilty. The law would also enhance restrictions to curtail the general practice of freeing chaebol owners after a certain period.
This would undoubtedly come as a huge shock for the chaebol, who may start to feel suffocated by all the new red tape. Meanwhile, another blow to corporate sentiment would spell more bad news for an already fragile economy. Until now, Kim has not been overly vocal about his desire to reform the chaebol to the extent where some people started to assume he would deign to walk a moderate road. But those who know him well say secretly that he is the hawkish economic adviser on Park’s campaign team.
It is not yet certain whether Park will accept his idea as part of her campaign platform, but it seems likely as the law aims to legitimize what has long been a reality anyway.
The chaebol, not individual companies, have long pulled the strings in Korea, and nobody has ever pretended otherwise. But the current corporate law fails to reflect this properly.
The Germans established a law on their konzern - a German term for business groups - for the same reason. Business groups that disintegrated after the Second World War were revived in the 1960s amid a global trend. The Germans created legal concepts in order to define the rights and obligations of corporate consolidation, with the goal of maximizing the merits of management under an umbrella group while imposing due responsibilities.
By enacting the law on conglomerates, Kim also proposes recognizing the reality of the chaebol and their owner-run management structures as well as their hereditary and hierarchical ownership patterns. With that settled, he suggests keeping the basic system in place while imposing certain obligations in return for those who enjoy the privileges it bestows.
But what remains in doubt is how this will all play out and especially the aftermath, as it could lead to an even bigger controversy. There will need to be debate about how exactly the law should be applied. There should be little contention over the need to divide the ownership structure of conglomerates among the owners, boards of affiliates and other parties. It would ease criticisms of dynastic rule and illegal inheritance. But sticking points would likely involve anti-trust practices such as favoring affiliates in business deals and providing cross-affiliate financial assistance.
Reviewing companies as chaebol units could also raise problems. Kim said no companies that serve the personal interests of owner families would be permitted to stand as members of the business group, but such a restriction would seem to contradict the spirit of the law on conglomerates. The law grants business groups the freedom to conduct business and management on their own terms, while taking punitive action only when legal transgressions are detected.
Another test will be getting employees to take a bigger role in management. Germany revised its law in 1976 to guarantee workers a say in managerial decisions in a bid to keep a lid on corporate greed and managerial missteps. And trade unions in Korea will likely demand that the government here follow suit by implementing such a law after the business group act is set in motion. Kim is no doubt well aware of this as he studied economics in Germany.
His proposal will undoubtedly face strong resistance from companies if the hidden agenda is to give employees more of a role in management affairs.
* The author is an editorial writer of the JoongAng Ilbo.
by Kim Yeong-ook