Analysis: South Korea's unloved chaebol

SEOUL (Reuters) - If you are a South Korean you might well wake up in a Samsung-built apartment, watch the news on an LG television, drive a Hyundai car to work and make a dinner reservation at a Lotte Hotel restaurant on a Samsung phone.

People walk behind a glass window bearing the logo of Samsung Electronics at the company's headquarters in Seoul in this November 6, 2009 file photo. REUTERS/Choi Bu-Seok/Files

If you are really lucky, you could be one of the tens of thousands of graduates hired each year by the family-run conglomerates or chaebol whose annual revenues are equivalent to the country’s gross domestic product.

And if you actually own one of the chaebol in this election year, you will find yourself the target of growing popular anger.

South Korea’s smartphones and cars may have won global acceptance, but back home Koreans are increasingly disturbed by the influence the chaebol have over their lives.

That very public anxiety is coming at a sensitive time for the conglomerates as they prepare the transition to a third generation of family owners and face a strong, unwelcome, focus of attention in the run-up to next week’s parliamentary election.

Ahead of the April 11 vote, politicians of all stripes are turning their rhetoric on the conglomerates.

The business groups are seen as the main winners in a political compact under dictator Park Chung-hee that catapulted South Korea from poverty to rich nation status in a generation but which have given little back to society in return.

Park, in power from 1962 to his assassination in 1979, openly encouraged chaebol to amass economic power and near monopoly control in return for lifting the war-ravaged country out of poverty.

“The poison in the Korean economy”, is how left-wing opposition leader Han Myeong-sook now dubs them.

Talk these days is about those left behind in a country where poverty among the old is 45 percent, three times the rich nation average, and where the social safety net is one of the weakest, according to the Organization for Economic Cooperation and Development.

Asked if the chaebol were moral, 74 percent of respondents ticked “negative” in a recent poll by a think-tank linked to the ruling pro-business Saenuri party.

Some critics have even likened the transition to a third generation at Lee Kun-hee’s Samsung Group, the biggest of all the chaebol empires with interests from ships to computer chips, to Kim Jong-un, who has just taken over as the third of his line to hold power in North Korea’s dictatorship.

“Lee Kun-hee shows up holding hands with his daughters. That’s exactly what the Kims in North Korea did when they staged field inspections,” said Kim Yong-cheol, formerly the top legal counsel at Samsung Group who spilled the beans on alleged corporate malfeasance at the conglomerate in 2007.

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Lee was indicted on tax evasion charges, although he was later pardoned, and prosecutors said they could find no evidence he had set up slush funds for bribes, as alleged by Kim, something that Samsung has always said was “unfounded”.


Prosecutions against the head of SK Group, a telecoms to oil conglomerate, as well as the head of Hanwha Group, whose interests span explosives to financial services, have again piled pressure on the chaebol as the parliamentary vote looms.

That poll will be followed by a presidential vote in December, the first time in 20 years they have been held in the same year, presenting a rare opportunity for either the left or right to advance their agendas if they win both elections.

The left-wing Democrat United Party, which is running neck and neck with the ruling conservatives in polls, has threatened to limit the ability of chaebol companies to hold cross shareholdings, the key to the complex web of holdings that allows the Lees and others to retain control of their empires.

Lee Kun-hee’s only son Lee Jay-yong, a 43-year old who was educated in South Korea, Japan and the United States, will effectively inherit control of Samsung Group via a 25.1 percent holding in Samsung Everland, an unlisted company that sits at the heart the cross shareholdings.

“Rather than complaining about chaebol bashing or waiting until they are forced to change, chaebol would be well advised to understand the substance of this policy and try to fulfill their social responsibility,” the Democrats chief policymaker Lee Yong-sup said as he unveiled its platform for the April polls.

The chaebol lobby group, the Federation of Korean Industries (FKI), effectively sank the moderate reform efforts of President Lee Myung-bak, himself a former chaebol chief executive, to “share” their wealth and help promote small businesses.

Former Prime Minister Chung Un-chan who headed a commission to promote that approach resigned last week, complaining that the conglomerates were “ignoring economic justice and laws”.

The FKI declined to comment on the criticisms, but an official there said the current debate on chaebol reform looked to be driven more by an emotion-charged pursuit of voter attention than a genuine attempt to find ways to improve the business environment.

While the chaebol produce the bulk of the wealth - Samsung Electronics alone made a record operating profit of 5.3 trillion Korean won ($4.70 billion) in the fourth quarter of 2011 - they employ less than 5 percent of the working population.

Lee Kun-hee is said by watchdog to have a personal fortune worth about $10 billion based solely on his known holdings of Samsung Group shares.

Korea’s small business sector, by contrast employs, 6.6 million people, 27.5 percent of the workforce, and 1.7 million of those are in the bottom 20 percent income bracket, according to government data.


Repeated attempts to pursue the chaebol through the courts have met with limited success. Although there have been convictions, there has rarely been jail time.

Samsung’s Lee was pardoned as his crime was deemed not serious enough to warrant a jail sentence. Hyundai Motor’s Chung Mong-koo’s was sentenced to a three year jail term in 2007 for fraud which was suspended in exchange for community service and a $1 billion charity donation as he was deemed too important to the economy to be jailed.

Both apologized and returned to hold company office.

SK’s head Chey Tae-won is currently in the dock charged with abusing company funds, something he denies. A 2004 conviction led to a 3-year jail sentence that was suspended.

One of the chaebol bosses that did do jail time is the head of Hanwha Group, Kim Seung-youn, although that was for kidnapping and beating some bar workers who beat up his son.

He is currently on trial for allegedly selling stock in group companies at a cheap price to his three sons, a move typically aimed at securing continued family control of the conglomerate.

“Deep down, chaebol owners don’t understand why they should be subject to secular law,” Kim, the Samsung whistleblower, told Reuters. ($1 = 1121.8500 Korean won)

Editing by David Chance and Jonathan Thatcher