Scandal halts conglomerates’ year-end plans

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Scandal halts conglomerates’ year-end plans

The presidential corruption scandal rocking Korea is causing a major management fiasco within the chaebol community, during the crucial time of year when companies set up plans and carry out their annual reshuffles for the coming year.

Some fear the fallout from the scandal may lead to a management vacuum, given that chairmen as well as top executives have been summoned by the prosecution investigating the confidante of President Park Geun-hye for corruption and abuse of power.

“If the top task for any executives is tackling the issues surrounding the probe, new business projects and investment plans will inevitably be neglected,” said an executive at one of conglomerates. “We have postponed all major schedules to pay attention to the investigation.”

Samsung Electronics Vice Chairman Lee Jae-yong, Hyundai Motor Chairman Chung Mong-koo, SK Chairman Chey Tae-won, LG Chairman Koo Bon-moo as well as executives of Hanwha, Kumho Asiana, CJ, Posco, Booyoung and LS were summoned this month for questioning over allegations that President Park asked them in a closed-door meeting to fund the foundations linked to her longtime friend Choi Soon-sil.

Samsung is deadlocked over its year-end human resources reshuffle and promotions, which usually come in early December - because prosecutors raided the conglomerate’s corporate strategy office as well as Samsung Electronics offices in Seocho, southern Seoul on Nov. 8.

Prosecutors are investigating whether the tech giant transferred 3.5 billion won ($3 million) to Widec Sports, a shell company created by Choi in Germany, for the supposed purpose of promoting Korean equestrian affairs.

In 2008, Samsung postponed a then-routine new year reshuffle to May, as the company was investigated over graft allegations after its former chief lawyer Kim Yong-chul said that Samsung systematically created slush funds by manipulating financial records.

“There is a high chance this year will see the repeat of 2008,” said a Samsung executive.

Before the scandal, it had been widely expected that the nation’s most valuable conglomerate would conduct a large-scale corporate overhaul to herald Vice Chairman Lee’s era as de facto commander-in-chief to take control from his bedridden father and Chairman Lee Kun-hee. Even if Samsung goes ahead with the reshuffle, the size of it will likely be unsubstantial, observers predict.

Lotte is in a similar position. Having already contributed massive funds to the two nonprofits, Lotte tried to lower the amount to 3.5 billion won, but later changed its position and coughed up another 7 billion won in May fearing possible repercussions. They received it back a month later.

“We planned to have a meeting with the presidents of all subsidiaries and announce a human resources overhaul after mid next month but the schedule has been wrecked,” said a Lotte executive. “We expect the planned reform under the ‘New Lotte’ initiative to be unveiled sometime in the first half of next year.”

Mergers and acquisitions for the new year are in a stalemate too.

“Under ordinary circumstances, we are supposed to be setting up new investment projects next year,” said a spokesman for Hanwha. “But our eyes are all on the prosecutors. We have no choice but to be conservative about next year’s plans.”

The conglomerate CJ, which had been working to normalize its management after its chairman Lee Jae-hyun was released from prison on a presidential pardon in August, is now facing a setback.

“The mood, which was showing signs of recovery, has turned cold. A special investigation takes up to 100 days, meaning management will be effectively paralyzed by the first half of next year,” said a CJ spokesman.

It’s unclear whether Posco Chairman Kwon Oh-joon, who is under investigation by prosecutors, may have his term extended because he needs to indicate his desire to serve another term as chairman to the board of directors by December.

Hyundai Motor Group, which is set to administer an overhaul as scheduled, is expected to minimize changes. Other companies are, too.

“Uncertainty, coupled with political risk, is the biggest problem now,” said an executive at a conglomerate who asked not to be named. “The probe into companies is hoped to be as small-scale as possible.”

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