▶주메뉴 바로가기

▶본문 바로가기

The Korea Herald
검색폼

THE INVESTOR
March 29, 2024

Finance

[INTERVIEW] Activist-turned-lawmaker takes aim at chaebol

  • PUBLISHED :August 23, 2016 - 17:48
  • UPDATED :August 23, 2016 - 17:50
  • 폰트작게
  • 폰트크게
  • facebook
  • sms
  • print

[THE INVESTOR] Chae Yi-bai is a 41-year-old rookie lawmaker from a minor party, but this has not stopped him from speaking out against Korea’s mighty family-run conglomerates, or chaebol.

“The chaebol model is fundamentally flawed and it is crippling the mechanism of Korea’s capital market,” Rep. Chae of the opposition People‘s Party said at his office last month at the National Assembly in Yeouido, Seoul. 


Rep. Chae Yi-bai of the opposition People‘s Party speaks during an interview with The Korea Herald./The Investor (Park Hae-mook)



Tycoons controlling groups like Samsung, Hyundai Motor and SK wield 100 percent control over the companies with less than 1 percent of their equities, so they have no incentives to improve their companies’ market value, boost stock prices or pay out dividends to shareholders, he said.

“While the market mechanism doesn’t really matter in this chaebol model, the so-called owners have other incentives -- to swindle corporate money for private interests.”

This is why usurpation of corporate opportunities is rampant among chaebol groups, he said.

Chaebol families set up a private company -- for example, an IT solutions provider or a logistics company -- and channel a big chunk, if not all, of the group’s contracts to this company. Profits sharply rise and the company debuts on the stock market, delivering a windfall for the family which owns it.

Hyundai Glovis, Hyundai Motor’s auto-shipping unit, was founded by the group’s chairman Chung Mong-koo and his son Eui-son in 2001, with an initial capital of 3 billion won ($2.69 million). It is now worth 6.3 trillion won, growing explosively on exclusive shipping contracts from Hyundai Motor and Kia.

Glovis, now listed and 23 percent owned by the chairman’s son, is seen as a key vehicle for the heir in his quest to obtain enough control over the entire group.

“It’s like there is not a single chaebol group not doing this. It’s such an easy way to pass down the control to the heirs without paying taxes,” the lawmaker said.

Before joining politics, Chae was a corporate governance activist for 18 years, affiliated with the civic group Solidarity for Economic Reform. Chaebol families swindling corporate opportunities for their personal interests have been his main area of focus.

Laws have been amended to address the issue since 2006, when Chae and others at Solidarity for Economic Reform first brought the issue to the public’s attention.

“But they are not enough to root out the practice. It really remains a valid option for chaebol groups planning succession,” he stressed.

Rep. Chae believes that Korea must act now to reform the flawed chaebol model and win back the trust of global investors.

“In the past few years, a series of events have convinced foreigners that Korean companies deserve discounts for corporate governance risks,” he said.

Among high-profile incidents include Hyundai Motor’s over $10 billion purchase of land in Seoul’s upscale Gangnam and the proxy battle between Samsung and US activist fund Elliott over the merger between the Korean group’s construction and fashion businesses.

“Chaebol groups have since come up with measures to increase shareholder incentives and improve corporate governance. But it will take time before Korea sees real changes,” he said.

The lawmaker, however, expressed hopes for the new generation of chaebol leaders.

“This young group of heirs, having been educated in the West, may have a different mindset from their parents’ generation when it comes to shareholders value. I am pinning hopes on that,” he said.

By Lee Sun-young/The Korea Herald  (milaya@heraldcorp.com)

EDITOR'S PICKS