Family-run chaebol should improve transparency, accountability
The public's demands and expectations for family-run conglomerates' operational transparency and accountable management have been increasing, but without tangible results. According to a report by the Korea Fair Trade Commission on corporate governance structure, only 313, or 16.4 percent of 1,905 companies affiliated with 51 chaebol groups, had group chiefs or family members registered as board members. This is a noticeable setback from 18.4 percent in 2015, reflecting the conglomerates' growing inclination to avoid legal responsibility.
It shows how long a way the country has to go before the people will be able to see reform at family-owned business groups. Most owner families wield absolute power over their conglomerates' management and garner the majority of the profits, but do not take responsibility when things go awry. For similar reasons, outside directors, who are supposed to check owners' tyrannical practices and unfair inter-affiliate deals, have long become synonymous with a rubber stamp. The outside directors' participation rate in board meetings reached 96.5 percent, but their rate of approving proposed agenda items according to the original plan stood at a whopping 99.5 percent.
Korea's largest chaebol, such as Samsung, Hyundai Motor and LG, are now being controlled by third- or fourth-generation owners. These young tycoons have invariably stressed the need for corporate transparency and social responsibility. Few of them, however, have made meaningful reforms in their governance structures. If chaebol fail to reform themselves, outside pressure will intensify in the form of binding legislation. It also explains why the government and governing party have enacted “three laws for a fair economy” with full public support.
The three laws call for electing auditors separate from other board members, restricting the largest shareholders' voting rights, and expanding class-action suits and regulating the pursuit of personal interests, to advance outdated corporate governance and protect consumers. Chaebol owners must realize it is time to ditch their “imperial management” style marked by the abuse of authority even with their small equity stakes. They should also stop the illicit transfer of management control to their children, and unlawful intragroup transactions. Before being forced by law, chaebol ought to improve their governance structure themselves in order to meet global standards and be reborn as sustainable and trustworthy corporate citizens.