Chaebol reform to accelerate under Moon
By Yoon Ja-young
Moon Jae-in has stressed chaebol reform as one of his key pledges. For this, the presidential candidate of the Democratic Party of Korea, who won the election according to exit polls, will strengthen the rights of shareholders and consumers. He is also expected to give more power to the Fair Trade Commission (FTC). Conglomerates will likely face a bigger tax burden.
Strengthen shareholder rights
Moon has pledged to reform the Commercial Law, which will lead to the introduction of diverse measures to restrict chaebol owner families from abusing their power in management.
Among them is the adoption of the multiple derivative suit, which enables shareholders of a mother company to file lawsuits against executives of affiliates.
He also plans to obligate businesses to introduce an electronic voting system or voting through mail, which will help small shareholders get their voices heard.
Currently, conglomerates select executives at general shareholders’ meetings, and choose auditors among those executives. As a result, auditors are mostly those preferred by the large shareholders. Moon, however, plans to restrict large shareholders' rights when selecting auditors.
Workers will also have a bigger say in management as they will be allowed to recommend a board member. It will be adopted in the public sector first.
More power to FTC
Reforming the governance structure of chaebol as well as rooting out their unfair practices is also among the key pledges of Moon. He plans to do this by bolstering the FTC.
Most of all, a bureau in charge of investigating conglomerates will be established within the FTC. Set up during the former President Kim Dae-jung administration, it contributed to diminish unfair internal trading at conglomerates. However, the bureau was scrapped during the former President Roh Moo-hyun administration due to fierce opposition from conglomerates.
Moon also promises to open the door wider for those suffering from unfair trade. Currently, only the FTC can bring cases related with the Fair Trade Act to the prosecution. However, as Moon plans to scrap the restriction, anybody can bring such cases to the prosecution or the police.
Normalization of tax on conglomerates
The corporate tax rate was reduced to 22 percent from 25 percent during former President Lee Myung-bak administration. Though Moon doesn’t say that he will immediately raise the corporate tax rate, conglomerates are likely to face a bigger tax bill anyway.
Moon made it clear that the corporate tax rate will return to 25 percent if the government lacks financing. Analysts say this is likely to happen since a tax hike seems inevitable to fund his social welfare pledges.
Moon also promises to pull up the minimum corporate tax rate on extremely lucrative businesses. Conglomerates have also been enjoying diverse tax exemptions and tax cuts, but they will disappear.
Meanwhile, Moon promised to strengthen penalties on conglomerate owner families violating laws. It has been customary for Korea’s chaebol chairmen to get presidential pardons, citing their contributions to the economy. But Moon says he will restrict the president’s right to pardon them.