In parallel with what has been a relatively global phenomenon, Korea has seen a stark lurch left in its political dialogue in recent years.
In the U.S. this has been personified by the Occupy Wall Street movement where the banking industry, a group that was highly dependent on government support during the crisis, has been vilified as an easily identifiable target for public anger. However for much of the developed world the “1 percent” are hard to identify.
In contrast, within Korea there is a term used to describe powerful and wealth organizations: chaebol. This makes them easier political targets.
Some years ago, CLSA Korea coined the phrase “chaebolution” to describe what we saw to be the inevitable transition towards further and more meaningful restructuring for the chaebol.
A key question for the market is the degree to which this lurch left in the domestic political agenda will facilitate or aggravate that process.
This is because the global rise in frustration about the disparity of wealth across economies has manifested in Korea in rising anti-chaebol rhetoric. This has inevitably led to increased calls for measures to curb their influence on the economy.
Previously the government had been considering plans to loosen restrictions on non-financial holding companies owning financial subsidiaries and vice-versa. Despite a number of attempts to pass such amendments into the law the opposition has consistently struck them down.
In fact, contrary to our expectation that the government would continue the established process of weakening regulations to coax change out of the chaebol, the reality has been that the regulations have actually tightened.
The degree of change is surprising. In the middle of next month the one year grace period will lapse on legislation that makes company directors potentially personally liable if they approve internal transactions or business deals that benefit families or management against shareholders. Also, late last year we saw a tax introduced for large individual shareholders where internal transactions are deemed to be excessive.
There are obviously practical constraints to such policies, however the intentions can be in no doubt.
These issues are likely to be amplified in the lead up to the National Assembly elections scheduled for next month.
The policy agenda continues to swing left and as a result, against chaebol interests. Indeed some of the harder line left wing politicians are calling for the compulsory severing of circular ownership structures that facilitate family control.
All of this political noise has recently been compounded by the Samsung family feud with two siblings of the Samsung Group founder suing for the rights to inherited stakes in both Samsung Life and Samsung Everland. If a successful case is mounted this could potentially trigger significant group restructuring.
Our original thesis was that change would always need to be voluntary and led by the controlling family’s patriarchs.
What has changed with the political environment and the emergence of the Samsung family feud is the possibility that the law or internal legal battles will force a defensive transition rather than a strategic and or managed change.