Tough times for Korea Inc.More and more CEOs and senior executives are sighing about their corporate futures. Their complaints about bad business conditions set off alarm bells across our industrial frontier. The bigger the company, the greater the anxieties.
What worries businesspeople more than unfavorable business conditions are lamentable events in the political arena. Both the ruling and opposition parties are working on agendas for their election platforms that are not good for companies. They include laws to toughen regulations on cross-affiliate shareholdings, curbing the excesses of families that control big companies through strengthened protection of the interests of minority shareholders, and raising corporate taxes.
Politicians know how chaebol-bashing proved its power during the last presidential election, which was won by the ruling party presidential candidate Park Geun-hye. Anti-chaebol platforms gained even more momentum upon the revelation of favoritism towards conglomerates in reward for their donations to foundations established in the name of sports promotion as revealed in the power abuse scandal involving the president and her friend Choi Soon-sil.
Although the conglomerates are the main engine for our economy, outdated practices and out-and-out corruption should be cracked down on. But the timing is poor. The economy is in as bad state as in the late 1990s, when Korea had to beg for an international bailout. On top of sluggish exports and supine domestic demand, household debt is on the verge of exploding as U.S. interest rates rise.
Samsung Electronics reported an astronomical operating income of 9.2 trillion won ($7.7 billion) in the final three months of last year. But there are few other cases of happy endings at corporations in 2016. Even Samsung questions if there is a future for the company after a decade. The economic environment has become that unpredictable.
The corporate sector is losing any kind of chance to break through its difficulties as the political sector turns its back. The chaebol had it coming. The suspicions around the merger of Samsung C&T and Cheil Industries turned out to be true after an independent counsel investigated the inner circle of Present Park. Samsung C&T shareholders are enraged upon learning that management intentionally pushed the value of its shares down ahead of the merger.
The merger was supposed to work out better for Samsung Group heir apparent Lee Jae-yong if Samsung C&T shares were cheaper because Lee held more shares in Cheil Industries. Samsung Electronics had to win over opposition to the merger led by U.S. activist fund Elliott Management by having the largest outside shareholder — the National Pension Fund — agree to the merger ratio. The merger went through and, although legally acceptable, left many questions. The country’s largest conglomerate could have orchestrated a mega-merger and hereditary succession better.
Hanjin Shipping’s fall from grace is another major chaebol bellyflop. Unlike another big wobbly company — Daewoo Shipbuilding & Marine Engineering, which is now run by state-owned creditors — Hanjin Shipping was owned by Hanjin Group. The responsibility to keep the country’s largest container liner afloat was that of the largest shareholder. But Hanjin Shipping desired to maintain management and ownership rights without making a risky investment to help the shipper pay its debt and keep operations going. It was a classic example of the selfishness of family-run businesses.
Companies also have their complaints. They have been more or less bullied to cough up money. In 2015 alone, Samsung forked out 190 billion won in donations. It paid money not only to the two controversial organizations created by Choi — the Mi-R and K-Sports foundations — but also funded government-sponsored creative economy and innovation centers across the country and the PyeongChang Olympics Organizing Committee. When including various other charities, Samsung’s bill would be much larger. Other large companies were treated the same. They could feel resentful of all the public criticism of them for collusion with the government.
Samsung and Lotte cannot even make their annual appointments for promotions because they have been implicated in the Choi Soon-sil scandal. Executives have been summoned by state prosecutors and the independent counsel for endless interrogations and for legislative hearings. Because they have put off promotions, business outlines for future investment and hiring are being delayed. In the meantime, U.S. and Japanese companies are aggressively backed by their governments.
Nevertheless, Korea Inc. helplessly watches its U.S. and Japanese rivals make headway while its hands are tied. Companies need as much public support as possible. We must not waste time pointing fingers at ourselves.
JoongAng Ilbo, Jan. 9, Page B8
*The author is the industrial news editor of the JoongAng Ilbo.