My recent travels took me to South Korea at an interesting time given mounting tensions with its neighbor to the north. My colleagues and I got a pulse check on some of the reforms taking place, including those related to the family-run conglomerate companies known as chaebols.
I first came to South Korea in the 1970s, and politics have been contentious there as long as I can remember. Over the years several Korean presidents have been jailed for corruption and one unfortunately committed suicide when his family came under investigation.
The most recent president to be jailed is former President Park Geun-hye, the daughter of Park Chung-hee, the previous strongman leader who ruled South Korea from 1963 until his assassination in 1979. As a teenager, she became de-facto “first lady” when a North Korean sympathizer assassinated her mother.
Perhaps not surprising given her traumatic past, she fell under the influences of a religious group in South Korea called the Church of Eternal Life. Its leader and later his daughter, Choi Soon-sil, were said to be Park’s confidantes.
When Park was elected president in 2013, Choi and her followers gained influence over a wide range of issues, including government budget proposals. Allegedly, Choi also used her position to pressure leading Korean chaebols to donate millions of dollars to her foundations, among other alleged illegal activities.
It’s important to note that US federal law and the Foreign Corrupt Practices Act could result in penalties on the embroiled chaebols and restriction of their business activities in the United States.
Corporate Governance and Reform
Park’s scandal and subsequent impeachment heightened awareness of corporate governance in South Korean companies. In May 2017, Moon Jae-in, a reform candidate from the opposition party, was elected president on a platform calling for a number of reforms and measures to weaken the chaebols’ power.
Scandal seems to be part and parcel to politics in South Korea. Some commentators say that it is very difficult for South Korea to break the tie between politics and business, but we have seen corporate governance undergoing substantial change as a result of recent scandals.
The National Pension Service (NPS) has been key in the effort to help clean things up. It is the third-largest pension fund in the world with more than US$450 billion in assets. NPS has held substantial shares in companies listed in South Korea, so it has often had the deciding vote on various measures at shareholder meetings.
But alas, even the NPS has been subject to scandal. In 2016, Moon Hyung-pyo, a former South Korean minister of health and welfare and subsequent chairman of the NPS, was arrested for abusing his authority to pressure the NPS to cast a key vote in a corporate merger deal. The NPS held a substantial stake in both companies involved.