Reluctant giver?

Lee claims to have never heard about profit sharing, but economists offer to fill him in

By Kang Seung-woo

Despite Samsung Electronics Chairman Lee Kun-hee’s dismissal of profit sharing, many companies have already implemented systems similar to that suggested by former Prime Minister Chung Un-chan.

Chung, who is now heading a presidential commission for shared growth, has been calling for big businesses to implement a scheme of profit sharing between them and smaller subcontractors. Apparently, the suggestion has miffed Korea’s most influential businessman, who told reporters Thursday that he had never heard about the implementation of such a scheme in his life and wondered whether Chung got the idea from communism.

However, economists point out that the idea is nothing new.

“There is a benefit of sharing in economics, so we cannot say that there is no concept of profit sharing,” said Lee Phil-sang, an economics professor at Korea University.

The 69-year-old tycoon criticized a recent proposal by the former prime minister for large businesses to share their profits with smaller companies.

“I have studied economics from early on as I was raised in an entrepreneurial family, but I have never heard of profit sharing and I simply do not understand why it should be implemented,” Lee told reporters at a monthly meeting of the executive board of the Federation of Korean Industries (FKI).

He went further, saying: “Apart from whether or not I am against the idea, I have never seen it discussed in any textbook and I don’t even know whether the concept is used in socialist, capitalist or communist countries.”

The concept was proposed late last month by Chung; he asked companies to set aside a portion of their profits to form a fund to be uses for shared business growth.

“Profit sharing might not be in economics textbooks but it cannot be called socialist,” said Kim Sang-jo, an economics professor at Hansung University.

“Frankly speaking, his remarks were out of order.”

According to Kim, Samsung Group and its affiliates including the electronics unit have a system similar to Chung’s proposal, which gives bonuses to employees and executives at the yearend if their profits exceed initial targets.

“Chung suggested that large companies expand their extra profits to not only employees and executives but also to smaller subcontractors that helped them beat profit targets, regardless of what it is called,” he said.

“Profit sharing is a format of various benefit sharing projects aiming at a win-win cooperation policy to both contractors and subcontractors. The idea is currently employed by many local companies including POSCO.”

POSCO, the world’s No. 3 steel maker, launched “benefit sharing” in 2004 and its project has been seen as a role model by the government.

“When making profits on projects, we share half of it for three years with firms which contributed to the performance,” said an official of POSCO.

“Without any shared profits based on contributions such as technical development and equipment investment, smaller firms have no motivation to work hard.”

According to the official, the steel producer has shared 37.8 billion won with 613 subcontractors.

Professor Lee supports POSCO’s policy.

“It will be an anti-market ideology if they just argue that profits should be shared. So it will be more desirable that large companies and smaller suppliers sign an agreement on profits before starting work together,” he said.

“From a mid- to long-term perspective, it is important to guarantee profit to an extent to be used to finance technological development, securing quality human resources and equipment investment.

“There is a polarization between conglomerates and small businesses. So rather than large firms lashing out at the profit-sharing system, they had better form a balanced industrial structure based on the idea.”

The nation’s conglomerates have long been accused of treating subcontractors unfairly ― prospering through huge exports and growing domestic market share, while small- and medium-sized companies suffered financial troubles.

Meanwhile, presidential officials expressed regret Friday over Lee’s views on the government's economic policy.

“The mood is not good inside Cheong Wa Dae over Chairman Lee’s remarks," a senior Cheong Wa Dae official was quoted as saying.

Another said it was incomprehensible for the Samsung chairman to make such remarks in public at a time when President Lee Myung-bak is focused on laying the groundwork for the joint growth of conglomerates and smaller businesses.