When lineage is everything

The talk of the town is the family feud at Lotte Group, a high-stakes contest between two siblings over control in the family-owned retail giant. The conversation usually ends with mildly sardonic sympathy for the imprisoned SK Group Chairman Chey Tae-won. Chey, who has been in jail since 2013 for embezzlement, could not have been unluckier. He might have had his hopes up after then-Justice Minister Hwang Kyo-ahn late last year indicated that entrepreneurs could receive special pardons. But such talk was silenced by the so-called “nut rage” tantrum by Cho Hyun-ah, a daughter of Korean Air’s chairman, which made the public despise the chaebol families all over again.

Amid a prolonged economic slowdown and depressed corporate investment in the first half of the year and a worsening outlook for the second, business groups are suggesting special pardons for imprisoned tycoons to boost corporate morale. The president began to tilt toward the idea although it could be seen as violating her campaign promise not to offer special favors to big businessmen. Then the Lotte family began its public power struggle - an aging, possibly senile despotic father caught in a bitter fight between his two sons - refueling public disgust over corporate dynasties and the excesses of their kids. People are demanding some greater fix to the chaebol legacy in Korea.

Chey is not associated with Cho’s insolence nor the mud-flinging of Lotte’s Shin family. But the family-run conglomerates come under the same public yardstick. They may complain of a stigma, but the public resentment has a cause.

Korean chaebol owners rule over their corporate empires with just a paltry amount of shares. They nevertheless wield mighty power over the groups and unashamedly hand down the power and riches to one generation after the other. The foreign media entirely focuses on how such owner families manage to exercise influence over corporate empires without challenge. Korean companies have low reputations despite the excellent quality of their products and services because their management generates endless controversy with excesses in personal behavior and periodic power struggles.

The corporate sector claims its owners wage a tough battle every day defending their management right with such small stakes. Chey claims he did not embezzle company money for his own sale but to set aside reserves to protect the group’s businesses from a predatory foreign fund. Samsung has been preparing its succession well, but the group also came under attack from an activist foreign hedge fund. The cases underscored how weak the ownership structure of the mighty Korean conglomerates is.

But this is their own fault. They have expanded and built their empires largely on debt instead of their own wealth. Since they do not have sufficient funds, their stake naturally was reduced when their companies went public and had to issue new shares to raise more funds. They claim that they sacrificed for the sake of strengthening their companies and that was done for Korea’s sake.

A debt-heavy growth model for companies during the early industrialization stage in the 1960s has always been a flaw in the Korean system. In 1969, the presidential office had to set up a task force to address corporate debt. In 1972, the government froze non-banking loans for companies and had to offer a series of debt easing actions. Under state protection and patronage, large companies were able to expand their businesses and build up their riches. The state is again coming to their rescue, thinking of coming up with mechanisms to help companies defend their management rights from outside funds.

Korean companies are much more indebted to their society than their foreign counterparts. Yet they are neither grateful nor feel indebted. The public had to witness one family feud after another in most of the household chaebol names - Samsung, Hyundai, Doosan, Kumho and Lotte, to name but a few. One tycoon threw himself from a building over a sibling rivalry. We cannot blame the rich for fighting over the family fortune. It’s human nature. But management of companies should go to an entrepreneur or businessman tested for his ability and approved by the industry or the market. It must not be handed out according to lineage alone. Illegalities carried out in order to defend one’s control of a company - risking a company’s reputation, future and the livelihoods of its employees - due to greed or sibling rivalry cannot be tolerated. The public is demanding chaebol reform because they want to see decency in the corporate community.

JoongAng Ilbo, Aug. 5, Page 30

*The author is an editorial writer of the JoongAng Ilbo.

by Yang Sunny