Families Still Keep Grip on S. Korea’s Conglomerates
Lee Hee Kun, chairman of Samsung, South Korea’s largest family-owned conglomerate, or chaebol , had just crowned one of his most successful overseas trips by receiving a handshake and praise from President Bush.
Bush had attended a banquet to raise funds for a Korean War Memorial in Washington in early May to thank Lee for sponsoring the dinner and making a contribution to the memorial.
But the glory faded quickly. A few days later, President Roh Tae Woo unceremoniously ordered Lee, the commander of a business empire with $34 billion in sales, to cut short his trip and come home. Lee rushed to Seoul to join leaders of the other nine major chaebol in a meeting in Roh’s office.
Samsung and the other chaebol, Roh charged, had engaged in so much land speculation that rents and housing prices had mushroomed out of reach of average Koreans. Sell your unproductive land, Roh ordered.
Afterward, Lee, flanked by the other nine leaders, appeared before the mass media to pledge that the 10 conglomerates would sell off 12,793 acres of land within six months. Samsung’s holdings--4,700 acres--were the largest. Moreover, Roh announced the firing of a bank president charged with improperly lending Samsung money to buy a large chunk of property.
The clash was only the most recent in more than three decades of attacks upon Korea’s mammoth chaebol.
Samsung, the principal target of Roh’s wrath, took it philosophically.
“The wind strikes hardest on the one who marches at the front of a line,” one Samsung executive commented.
Over the years, successive governments have adopted a carrot-and-stick approach toward Big Business--”the same way a father handles his children to make sure none of them get out of hand,” said Choe Dong Soo, senior analyst and manager of Korea Investors Service, a credit-rating firm.
South Korea’s conglomerates suffer major--and by some measures, increasing--antipathy from the public, despite the key role they have played in the country’s development. By calling chaebol leaders on the carpet, Roh was trying to bolster his own faltering political support, said a foreign diplomat who asked not to be identified by name.
Big Business’ unfavorable image, Choe said, stems from its close relations with government--a feeling that the chaebol have cornered the country’s wealth with the help of favors from the government--plus the fact that all of the conglomerates are family firms.
Choe said anti- chaebol sentiment caused many of the labor problems that erupted after Roh promised during his presidential election campaign in 1987 to shift South Korea from authoritarian to democratic rule.
“Laborers felt that ‘I also played a role in Korea’s development but no benefits have come to me,’ while the government concentrated on financing the expansion of the chaebol through people’s tax money,” Choe said. “Korean people are a little bit socialistic. They don’t have a capitalist mentality.”
Koreans don’t appreciate the fact that growth would have been impossible without the chaebol, he added.
“In Japan, the company gets rich. In Korea, only the company owner gets rich. . . . Nearly all of the Korean people are against the chaebol, “ Choe said.
The hostility is beginning to trouble chaebol owners.
Koo Chan Kyung, chairman of Lucky-Goldstar Group, for example, took the unprecedented step in June of pledging that his conglomerate would spend $4.2 million a year on the poor, roughly 1% of the group’s profit.
“With growing demands from the public that business return part of its profit to society, I have decided to create a welfare fund,” Koo said. Business must play a leading role in solving social problems, he added.
Kim Suk Won, chairman of Ssangyong Group, took the opposite tack in October. He complained that “some government officials and scholars are talking about a concentration of wealth in the chaebol and urging that wealth be redistributed to society. But is it really possible to distribute wealth to the whole society?”
South Korea, Kim said, still needs to concentrate its financial resources to achieve the growth necessary for it to become one of the world’s advanced industrial nations.
Kim’s prescription, both to combat the chaebols’ tarnished image as privileged recipients of government favor as well as to promote economic efficiency, is government decontrol.
The trend since he took over Ssangyong after his father died 15 years ago is in that direction, Kim said. But oceans of change are needed, he added.
The chaebol, like most South Korean companies, are controlled by founders or sons of founders. Jang Song Hyon, president of S. H. Jang & Associates, a business consulting firm, said 48.7% of firms are managed by a founder and 18.4% by a founder’s son.
But the world-class size of the chaebol makes them stand out as a target for criticism. Indeed, for three decades, governments have used Big Businessmen as scapegoats in attempts to curry favor with the public.
In 1961, Lee Hee Kun’s father--the late Lee Byung Chul, founder of Samsung--was assessed what is now widely regarded as a politically inspired fine of $60 million for alleged tax evasion. In 1965, he was forced to “donate” to the government what at the time was the world’s largest fertilizer plant, a move that may have cost more than $200 million. And in 1980, Lee was forced to sell Samsung’s national television and radio network to the government.
Nonetheless, the government has often turned to the chaebol to rescue failing government-promoted corporations.
Daewoo Group, for example, is staggering under more than $1 billion in debt from a shipbuilding firm that it took over at government request. A foundering shipbuilder that Samsung took over at government request in 1975 has never shown a profit.
Government favors, however, help balance the score. In an autobiography, Samsung founder Lee wrote of persuading the late President Park Chung Hee to let him set up a newspaper, the Joong Ang Ilbo, to counterbalance what he called the anti-government, anti-business Dong-A Ilbo.
“Park picked up the phone, called the minister of information and told him to approve the establishment of the newspaper,” Lee wrote.
Government direction of the economy took root in the early 1960s, when Korean business firms, according to Ssangyong’s Kim, were “only interested in short-term money-making ventures,” such as selling imports. Without government leadership, he added, companies probably would never have ventured into basic industries.
“The government asked large business groups to invest (in heavy, basic industries), and so, whether they liked it or not, they had to do it. In return, the government gave other benefits to the companies for making those investments. That is what led to the formation of the chaebol, “ he said.
It was a system “comparable to the government development plans of socialist countries,” Kim said.
Under Roh, government-business ties, if anything, have expanded, Choe said. “Even small groups now have relationships with the government,” he said.
Government approval is still needed to enter a new business. And “for groups that want to expand, close ties with the government are especially important,” Choe said.
Roh’s government has been acting to restrict the influence of major chaebol. For example, it permitted only smaller business groups to establish insurance companies. It picked a minor group to set up South Korea’s second airline company and divided up the right to manufacture helicopters among three business groups. And it made sure that none of the chaebol got a piece of a new private television network that the government has authorized.
Roh, however, has stopped short of a frontal attack.
Real government control cannot occur until the government forces conglomerates to compile consolidated balance sheets that show all of their activities--yet it has been unwilling to do so, Choe said. Despite nearly two decades of the government pushing the chaebol to list their separate companies publicly on the Korea Stock Exchange, all of the conglomerates remain firmly in family control.
Only 12 of Samsung’s 27 major companies are listed. Although Lee Kun Hee is the only family member holding a prominent corporate post, a large percentage of stock--Samsung officials refuse to disclose how much--is held by his relatives. Lee has said only that he owns less than 10% of the stock.
In terms of family, Hyundai is the No. 1 chaebol. Six sons and a brother of the founder, Chung Ju Yung, run its major companies.
Choe noted that all of the chaebol have established “cultural foundations” that facilitate family control and inheritance. Each foundation controls a large chunk of each group’s stocks. And the foundations are controlled by relatives of the chaebol leader, he added.
Many chaebol families also have succeeded in establishing alliances by marriage with the nation’s power elite.
Children of the late President Park, former President Chun Doo Hwan and President Roh have married sons or daughters of Big Businessmen. The newspaper Dong-A Ilbo says 25 of Korea’s Top 100 business groups enjoy “marriage alliances” with current or former government leaders.
Perhaps most significant is that although Roh’s deadline for the chaebols to dispose of their allegedly speculative land has passed, no announcement has been made of the results.
South Korea’s strong presidential system of government, nonetheless, does give the bureaucracy and the political leadership the ultimate trump card over the chaebol. If the country should adopt a strong parliament system, as a number of political leaders have advocated, the chaebol “would buy out the National Assembly” overnight, said a Korean economist who asked not to be identified.
BIG 10 S. KOREAN BUSINESS GROUPS Sales in billions of dollars, at 484 won per dollar.
Company 1989 1979 Samsung $34.3 $3.1 Hyundai 32.5 $3.8 Lucky-Goldstar 23.1 3.9 Daewoo 18.1 2.9 Sunkyong 9.4 2.8 Ssangyong 7.5 1.1 Hyosung 5.2 1.6 Hanjin 4.8 2.0 Korea Explosives 4.6 1.4 Kia 4.4 0.6
Source: Dong-A Ilbo newspaper estimate
