Jeong Seung-il, executive member of the Association for Alternative Economic Policy
Owners of Samsung and Hyundai Motor Corp. have been accused of passing managerial rights to their heirs via affiliates such as Everland and Glovis, showing a typical example of illicit management transfer from one generation to another among the family-controlled chaebol.However, the real problem stems from the fact that what they have passed on to their heirs is not personal wealth, but the right to control a business conglomerate. For example, in the case of Samsung Group, it the government were to impose full inheritance tax by law on everything passed down from the chairman to his son, the Samsung family would have to sell their shareholdings or part of the group’s affiliates to pay the amount, which would be quite large, indeed. Weakening share ownership by the Samsung family may destabilize the group’s management. We should think about if that is the right direction because the chaebol is not only a subject of reform, but a driving force in the economy. If the chaebol are in danger, it would deal a big blow to the national economy. In that sense, a correction is needed in the inheritance tax rate to allow the chaebol to stabilize. After all, inheritance tax usually accounts for only 1 to 2 percent of national tax revenue. Under current conditions, if a blue-chip company’s controlling shareholders have less ownership, corporate hunters are given a good opportunity to move in. So, the wisest solution is to address the problem of the chaebol’s illicit wealth transfers without undermining their governance structure. One option is for the chaebol to set up public foundations. By allowing such public foundations to play the role of major shareholder, the chaebol can donate part of their profits to society. With the public foundations becoming the core shareholder of holding companies, chaebol owners could see their corporate governance stabilized. In this case, the chaebol family members can maintain their honor by sitting on the board of the public foundation. A social consensus is needed to choose the most desirable option for the economy and businesses, between promoting a hostile takeover environment under the open market system and setting up measures for the chaebols to defend those managerial rights they have legally. Further discussion is also needed to absorb any damage to the economy incurred after changing the governance of the large conglomerates. Under current law, I think the holding company system is the right direction for the chaebols to take, in order to enhance their managerial transparency without dismantling their governance.
