During last year’s presidential election, all major candidates vowed to reform Korea’s family-controlled conglomerates and punish irregularities committed by their owners. It is against such a socio-political backdrop that a Seoul district court jailed SK Holdings Chairman Chey Tae-won after sentencing him to four years in prison for embezzlement on Thursday.
And that means it’s time the large shareholders of chaebol groups think twice before continuing their time-honored practices of spending corporate funds like their pocket money, as Chey has done.
Seven out of the nation’s 10 largest business group leaders have been put on trial for similar charges over the past 20 years or so. None have been in jail for long, because the court suspended their sentences and presidents pardoned them in view of their ``economic contribution.”
In his ruling, presiding Judge Lee Won-beom said that the head of Korea’s third-largest chaebol group which focuses on energy and communication businesses ``privatized” publicly-listed companies, and used group subsidiaries as tools for his crimes. ``In the process,” Lee said, ``the defendant betrayed popular trust in the SK Group which used to take the lead in fulfilling corporate social responsibility.”
Intended or not, the judge was pointing to another problem inherent in chaebol structure ― inheritance of management control within families.
Most of the second- and third-generational chaebol owners have failed to show the business acumen of their fathers and grandfathers, by being bent on personal asset-swelling, as was the case with Chey, and eroding the traditional business domains of smaller enterprises, such as bakeries and catering, instead of developing overseas markets and finding new growth engines at home. Chey’s father, the late Chairman Chey Jong-hyun, was one of the first Korean magnates to awaken to the concepts of globalization and businesses’ responsibility to society.
Maintaining chaebol’s governance structure has become not only socially unfair and ethically unjust but economically ineffective. Add to this Korea’s rapidly-evolving industrial structure, in which the growth of manufacturing giants fails to either create corresponding jobs or contribute to fair income distribution, then the nation has a public who no longer believe that what’s good for Samsung is also good for Korea. In short, chaebol should change themselves, both their thinking and their actions, not just for the good of the nation that raised them but for their own survival.
Pro-chaebol academics and commentators ask: Why should Korea give up a successful system? The answer is simple: Money and power should not be everything in a community. The greed and arrogance of some chaebol groups have already crippled the nation’s most basic value system by bending, bowing and breaking the law, as seen by the self-deprecating joke of ``Guilty are the moneyless; guiltless are the moneyed.” To survive, chaebol should reform themselves while they can. Few can say for sure if Korea should not follow Israel’s lead where popular outrage has led their government to almost entirely break up conglomerates.
In short, it may be realistically difficult ― and unwise ― for Korea to do away with chaebol, but the nation should cease to be the Republic of Chaebol.
Above all, the parliament should sharply toughen punishment for irregularities committed by chaebol owners, structurally removing legal room for leniency. The U.S. courts sentenced the CEO of Enron to 24 years in prison for accounting fraud; and Germany and Japan, while refraining from criminal punishment of embezzlement and breach of trust, slap prohibitive fines in dealing with corporate crime. Korea should consider benchmarking either, or both, of them.
President-elect Park Geun-hye for her part needs to implement her election pledge of disallowing further chaebol expansion. She should also break the collusion between economic, political and judicial powers.
Punishment of irregularities can hardly be referred to as reform but the restoration of common sense. Taming tycoons is not the end but the beginning of chaebol reform.