Reform chaebol ownershipThe country’s unique brand of business conglomerate, chaebol, is a hard nut to crack. The need to reform the chaebol community, often connected with despotic power, cozy connections with the government and politicians, elitism, favoritism, embezzlement and other scandals, has often been disputed and demanded since the financial crisis in the late 1990s. In a typical case of deja vu, another chaebol head bowed deeply to the public and promised to run the business group transparently and efficiently. Not surprisingly, few seemed to be moved or interested. The chaebol structure doesn’t change because of the embedded power. The political landscape can change every five years after elections, but there is no tenure for economic power. Who would want to part with such enormous power?
We had thought it would be different when the younger generation, educated at top foreign schools, move to chief executive posts. The founders knew how to bargain and concede when necessary because they knew where their power came from. But the young generation born with silver spoons in hand takes power for granted because they never experienced anything else.
As a business journalist, I have been able to observe chaebol family owners from one generation to another. The best place to study and compare them is at the funeral of an influential person. The older generation mostly comes alone to pay respects to the deceased, alone and leaning on canes. The next generation arrives with two or three secretaries or aides. The youngest generation is surrounded by an entourage of five to 10. There are a few who come alone - those who have been groomed well and also earn good evaluations for their entrepreneurship.
The owners of family-run business groups have absolute power. Yet their mighty power was tolerated and unconstrained because of the contributions to the economy by the earlier generation. Chaebol names are still synonymous with Korea Inc. But the public now thinks enough is enough. It is not just because they have just been through the unpleasant saga of the Lotte family feud. The Korean economy no longer hinges on the chaebol alone. With the decline of the traditional factory-based industry, chaebol no longer serve as a pipeline for work. Instead of striving to hone competitiveness, many large companies steal the work of smaller competitors using their market position and exploit suppliers. Many of the chaebol names will have to pass the power to the younger generation. But their abilities have not been sufficiently tested.
For their own good, chaebol need monitoring and constraint mechanisms. We are not saying the end of family-run ownership. What we ask for is appropriation and rationalization of the power vested entirely on one corporate head. The chaebol system also needs separation of powers. The owner family should lead the board, present direction for the group, appropriate funds for new investment and engage in charity and other social contributions, while the management should instead be left to professional entrepreneurs. Voices from the outside - shareholders and concerned parties - should be heard and considered. This is how other corporate family dynasties in foreign countries, like the Wallenberg family of Sweden, have lasted for more than a century.
Willpower is necessary to reorient the corporate governance system in such a manner. Independent outside directors that can represent the voices of general shareholders should also be members of the board. The board needs at least one voice that can say no and speak the truth in front of the owner.
The National Pension Fund can play the role. Many fear a political voice could interfere with corporate governance. But there is a way to prevent that. The National Pension Fund could join with other institutional investors to form a shareholders’ council and recommend an outside board member for large companies. In this way, one state organization cannot wield too much influence. If there is a solid pool of experienced entrepreneurs, the National Pension Fund can stave off political candidates. If that’s not enough, a candidate could be selected among a number of candidates. The candidate could be required to contribute without salary or be asked to donate earnings to charity groups.
If Lotte could start this experiment, it could solve many of its publicity and governance problems. The National Assembly should seriously consider legalizing a law to enforce a plurality voting system to appoint board members for companies.
JoongAng Ilbo, Aug. 13, Page 36
*The author is the head of the JoongAng Ilbo Sisa Media.
by Kim Kwang-ki