Chaebol reforms are dueAs the family feud over control of the Lotte Group leads to demands for chaebol reform, political circles have kicked off a full-fledged debate on the issue. The ruling Saenuri Party discussed ways to improve the outmoded governance structure of conglomerates in Korea at a joint meeting with the government. The opposition New Politics Alliance for Democracy also deliberated on chaebol structural reform at a session Wednesday.
The public outcry for such reforms was not necessarily triggered by Koreans’ growing resentment of the Shin family’s nasty fight to get control of the conglomerate. Lotte is the fifth largest business group with 81 affiliates and 350,000 employees in Korea. Yet, even the government and financial authorities were not aware of the group’s anomalous governance structure built on a uniquely complex cycle of cross-shareholdings among affiliates. The owning family’s arbitrary behavior showed one thing loud and clear: It takes the second generation’s inheritance of managerial rights for granted.
The battle at Lotte exposed the opaqueness of the governance structure and the manifest greed of the family. Calls for chaebol reform also stem from our society’s fatigue over arrogant behavior by the chaebol aristocrats, as exquisitely illustrated by former vice president of Korean Air Cho Hyun-ah’s “nut rage” meltdown last December. There are also deepening concerns over increasing attacks from foreign hedge funds wanting to take control of local companies.
But it’s difficult to find the way forward in terms of chaebol reform. The government has banned conglomerates from using new circular shareholdings. Transparency has improved thanks to the corporate sector’s efforts to curb cross-shareholdings. In the wake of the Lotte battle, experts are calling for a mandatory disclosure of information about unlisted companies, but the government cannot regulate the activities of foreign companies.
Another concern arises over our society’s knee-jerk emotional reactions, as seen in liberal lawmakers’ provocative slogans - “Chaebol is a black hole for a vicious cycle!” for instance - and their attempt to link chaebol reform to labor reforms. The government’s financial watchdogs, including the Fair Trade Commission, launched an intensive investigation of Lotte. Customers are boycotting the company’s products.
There is no clear answer to what is the best governance structure. But surely, the time has come to think about more desirable governance structures for our conglomerates.
JoongAng Ilbo, Aug. 6, Page 34