A lot is being learned about the way the owning families of the countries jaebeols use their companies to have children inherit parts of their conglomerates or to pursue their private interests. The civic group People Solidarity for Participatory Democracy (PSPD, Chamyeo Yeondae) has done a study of various transactions between 2995 and 2005 at 250 affiliates of 38 conglomerates, and has found that 64 subsidiaries engaged in wrongful transactions in order to promote the private interests of tycoon families. PSPD's view is that most jaebeols have at one time or another engaged in illegal activity in either handing over management authority from one generation to the next or in multiplying the family's personal assets. It is even more disturbing that new jaebeols like STX are following in the footsteps of the older ones. It looks like there is a long way to go until jaebeols are operated transparency and with nothing to be ashamed of and work together with the country.
Tactics include a whole host of typically wrongful stock transactions, including creating companies that are closely related to subsidiaries then engaging in "usurpation of corporate opportunity," engaging in transactions that are much more about supporting a owning family's company, and giving the family cheap shares or equity linked securities. They have used methods that slip back and forth from legality and illegality to inflate their children's assets so as to create for them seed money to use in maintaining management rights and to multiply the assets of the tycoon chairman. While PSPD's study is not enough to judge everything, it is plenty enough in getting a sense of what the real situation is.
The biggest problem lies with the lack of morality, because these families treat company assets like private property and continue to have a low-class obsession with maximizing their private interests whatever the means. Jaebeol families want to do whatever they can to pass on management authority without paying any inheritance taxes, but that is selfish desire and it goes against the capitalist order, which is the basis on which companies are built. They need to give up on the idea they can pass it all on to the next generation without having to pay legitimate taxes. It is going to be hard for our economy to find its way through the grim world of international competition if it still has its hands tied by the jaebeols. Much of the effort to normalize regulations on corporations has been held back by the impasse. Resolving "anti-jaebeol sentiment" remains a distant goal.
It would be too naïve to have hope in "morality" here. Ultimately the law will have to be put in order so that roundabout methods disguised as legal can be prevented, and the difference must be made part of custom practice and thinking. Changes have to be made to commercial law, and tax law has to be revised so that the roundabout inheritance strategies get taxed as well. PSPD proposes various revisions, including a new clause prohibiting " usurpation of corporate opportunity." Though not every detail can be argued, the government should accept and adopt what is worthwhile and legitimate. Meanwhile there needs to be inquiries into whether there were genuine illegalities in the use of loopholes during inheritance procedures.
The prosecution is investigating Hyundai Motors and Hyundai Development, the controversy about the wrongful transactions on the party of jaebeol families is going to heat up more than before and make big business as a whole uncomfortable, and that, over the short term, might be bad news for the economy. However, these are problems that must be resolved even if the process is painful. What major surgery is there that does not bring with it the pain of removing the afflicted area?
The Hankyoreh, 7 April 2006.
[Translations by Seoul Selection]
