By John Burton
It is often the case of "damned if you do, damned if you don't" when it comes to the punishment of crooked corporate bosses in Korea.
If officials send a convicted chief executive to jail, they are damned for hurting the economy. As a result, many company heads serve little or no prison time "for the good of the economy." But if the government decides to free the executives, it is then damned for cozying up to the chaebol and creating the impression that they are above the law.
This debate was once again revived when Lee Jae-yong, the de facto head of Samsung, was released on parole this month by the Justice Ministry after serving a total of 18 months in jail for bribing former President Park Geun-hye to approve a merger of Samsung units in 2015 that strengthened his family's control over the group.
Critics said the move undermined President Moon Jae-in's promise to get tough with the chaebol and curb their power over the economy. But the release was probably inevitable. Samsung Electronics and its chip-making prowess is what is powering the economy now and enabling Korea to enjoy a relatively strong recovery from the COVID-19 pandemic.
The Justice Ministry cited "the country's economic situation and the conditions of the global economy amid the prolonged COVID-19 pandemic" as well as "social sentiment and (Lee's) behavior and attitude" as reasons for its decision.
Other chaebol leaders had been lobbying on Vice Chairman Lee's behalf, while the public also appeared to be in favor. In a survey in July, 70 percent of respondents said they supported his release from jail.
Still questions have been raised whether the freeing of Lee was really necessary to enhance the performance of Samsung Electronics, which has been very successful in his absence as it benefits from a global shortage of semiconductors.
Lee's supporters argued that his presence in the executive suite is needed to make key strategic decisions on future investments, such as the location of a giant chip plant in the U.S., when Samsung is vying with Taiwan's TSMC and America's Intel for global leadership in the semiconductor sector.
Theoretically, the anti-corruption law could bar Lee from working at Samsung for five years, although this is likely to be waived. In addition, Lee is still on trial for related bribery charges that he denies.
The fact that the public generally supported Lee's release reveals that they have more faith in their business leaders than their politicians despite complaints that big business has made Korea a less fair society. When asked in surveys whether former Presidents Park and Lee Myung-bak should be pardoned on corruption charges, a majority said no.
The public also have a vested interest in seeing Samsung and the other chaebol perform well since many Koreans own their shares on the stock market, with an estimated five million domestic investors holding Samsung stock. That attitude will likely limit the government's desire in the future to discipline the leaders of the top conglomerates.
Lee's release comes at a particularly important time when the Korean stock market has been rising, reaching a record high in late June due to increased buying by retail investors even as local domestic institutions continued to sell.
The government realizes that the country's economic recovery and continued boom in share prices depends on exports of semiconductors and cars produced by the leading chaebol as global demand improves in the post-pandemic world.
Korea recorded the smallest fall in growth of any other advanced industrial economy in 2020 due to a strong export performance in the second half of the year and the economy is expected to grow by nearly 4 percent in 2021. Industrial investments, particularly among chipmakers, are also on the increase due to expectations of more export orders ahead.
It is for these reasons that the chaebol and their bosses are unlikely to face pressure from the government on corporate reform measures for the foreseeable future.
There are also other reasons why the government may go easy on the chaebol since the economy faces possible headwinds. One is that the Bank of Korea may soon be forced to raise interest rates to cool rising property prices and discourage household borrowing. A surge in COVID cases could also slow the economic recovery, including manufacturing output.
Korea is caught in a dilemma when it comes to chaebol reform. The country is as dependent as ever on the conglomerates to sustain economic growth. At the same time, COVID-19 has further widened the gap between the big companies and the small business sector. The resulting growth in inequality is only likely to lead to more demands by those less well-off to curb the dominance of the chaebol. It appears to be a situation that will not be easily resolved.
John Burton (johnburtonft@yahoo.com), a former Korea correspondent for the Financial Times, is a Washington, D.C.-based journalist and consultant.
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If officials send a convicted chief executive to jail, they are damned for hurting the economy. As a result, many company heads serve little or no prison time "for the good of the economy." But if the government decides to free the executives, it is then damned for cozying up to the chaebol and creating the impression that they are above the law.
This debate was once again revived when Lee Jae-yong, the de facto head of Samsung, was released on parole this month by the Justice Ministry after serving a total of 18 months in jail for bribing former President Park Geun-hye to approve a merger of Samsung units in 2015 that strengthened his family's control over the group.
Critics said the move undermined President Moon Jae-in's promise to get tough with the chaebol and curb their power over the economy. But the release was probably inevitable. Samsung Electronics and its chip-making prowess is what is powering the economy now and enabling Korea to enjoy a relatively strong recovery from the COVID-19 pandemic.
The Justice Ministry cited "the country's economic situation and the conditions of the global economy amid the prolonged COVID-19 pandemic" as well as "social sentiment and (Lee's) behavior and attitude" as reasons for its decision.
Other chaebol leaders had been lobbying on Vice Chairman Lee's behalf, while the public also appeared to be in favor. In a survey in July, 70 percent of respondents said they supported his release from jail.
Still questions have been raised whether the freeing of Lee was really necessary to enhance the performance of Samsung Electronics, which has been very successful in his absence as it benefits from a global shortage of semiconductors.
Lee's supporters argued that his presence in the executive suite is needed to make key strategic decisions on future investments, such as the location of a giant chip plant in the U.S., when Samsung is vying with Taiwan's TSMC and America's Intel for global leadership in the semiconductor sector.
Theoretically, the anti-corruption law could bar Lee from working at Samsung for five years, although this is likely to be waived. In addition, Lee is still on trial for related bribery charges that he denies.
The fact that the public generally supported Lee's release reveals that they have more faith in their business leaders than their politicians despite complaints that big business has made Korea a less fair society. When asked in surveys whether former Presidents Park and Lee Myung-bak should be pardoned on corruption charges, a majority said no.
The public also have a vested interest in seeing Samsung and the other chaebol perform well since many Koreans own their shares on the stock market, with an estimated five million domestic investors holding Samsung stock. That attitude will likely limit the government's desire in the future to discipline the leaders of the top conglomerates.
Lee's release comes at a particularly important time when the Korean stock market has been rising, reaching a record high in late June due to increased buying by retail investors even as local domestic institutions continued to sell.
The government realizes that the country's economic recovery and continued boom in share prices depends on exports of semiconductors and cars produced by the leading chaebol as global demand improves in the post-pandemic world.
Korea recorded the smallest fall in growth of any other advanced industrial economy in 2020 due to a strong export performance in the second half of the year and the economy is expected to grow by nearly 4 percent in 2021. Industrial investments, particularly among chipmakers, are also on the increase due to expectations of more export orders ahead.
It is for these reasons that the chaebol and their bosses are unlikely to face pressure from the government on corporate reform measures for the foreseeable future.
There are also other reasons why the government may go easy on the chaebol since the economy faces possible headwinds. One is that the Bank of Korea may soon be forced to raise interest rates to cool rising property prices and discourage household borrowing. A surge in COVID cases could also slow the economic recovery, including manufacturing output.
Korea is caught in a dilemma when it comes to chaebol reform. The country is as dependent as ever on the conglomerates to sustain economic growth. At the same time, COVID-19 has further widened the gap between the big companies and the small business sector. The resulting growth in inequality is only likely to lead to more demands by those less well-off to curb the dominance of the chaebol. It appears to be a situation that will not be easily resolved.
John Burton (johnburtonft@yahoo.com), a former Korea correspondent for the Financial Times, is a Washington, D.C.-based journalist and consultant.
