Samsung. Would-be Target of Chaebol Reform

Atmosphere has been created that the major target of reforms of Korean conglomerate Chaebol carried by the Presidential Transition Committee is the Samsung Group and majority shareholders of families. “Only when the Samsung Group is reformed, other major Korean conglomerates will follow suit,” the idea has been broached within the takeover team. However, in part of the Korean political circle, there are concerns over the idea on the ground that targeting the No.1 Korean Chaebol can backfire.

Are the family shareholders of the Samsung Group the target of Chaebol Reform?

Although either the Millenium Democratic Party`s Policy committee or president-elect`s transition team has never specified a certain conglomerate or its chairman as the target of Chaebol reform. However, in the process when President-elect Roh`s presidential pledges were worked out, the Samsung Group, its family stockholders and its subsidiary companies were often mentioned as a typical example of Chaebol reform.

In particular, in case of the lump-sum taxation of inheritance and gift taxes which is aimed to prevent illegal inheritance and gift practices by Chaebol chairmen and their family members, the presidential transition team specified the case in which Samsung Group chairman Lee Kun-hee`s first son Lee Jae-young, acting executive director of Samsung, was offered bond with warrant (BW), which gives shareholders rights to buy new corporate bonds at pre-fixed prices, as an example of gift irregularities. One of senior members of the government transition team said, “The Alliance for citizens` participation had brought the case to court and the judgment was in favor of the civic group at the first trial and yet it was overturned at the second trial later. The case is now pending in the Supreme Court. The outcome remained to be seen.” In addition, close aides to President-elect Roh said that he had reaffirmed the need of adopting the new taxation system several times during meetings and forms with his policy-making team to examine his presidential election pledges.

A senior member of the sub panel on economy in the team insisted, “It is unreasonable for Samsung to name after its chairman Lee Kun-hee, when it established `Lee Kun-hee Foundation`, scholarship funds worth of 500 billion won.” He pointed out that it is wrong to name “Lee Kun-hee Foundation” because the fund was composed of part of his private asset and funds raised by Samsung`s subsidiary companies.

Another senior member of the transition team also said on Jan.6, “The reason why the transition team is now promoting the idea that salaries of large companies should be made public is if the idea is put in practice, names of company executives who is received large amount of salaries without any business performance but only by currying favor with heads of Korean Chaebol will be unveiled. Therefore, large companies can not ignore their shareholders.”

The Goal of Chaebol reform is also to reform the Samsung Group?

The Presidential transition team`s pursuit of adopting a system, so-called “Requesting rights for spinning off a financial company from its parent company, to prevent chaebols from using their financial subsidiaries as a channel of mobilizing business funds is considered that the system is targeting Samsung Life Insurance. A policy advisor called Mr.J who worked for the MDP`s election committee and is now serving on the transition committee, explained, “If Samsung Life Insurance provides Samsung`s affiliates with financial supports by illegally using its clients` assets, in accordance with the right, spinning-off of the insurance company from Samsung can be sought.”

In addition, many believe that demand concerning whether to dismantle corporate restructuring headquarters was made, targeting Chaebols` restructuring headquarters which are now carrying out functions of secretary offices like before the 1998 financial crisis.

An official on the MDP`s policy committee stressed, “In case of Samsung, if outside executive directors exert their influence on decision-making process and its management gets more transparent, Samsung`s share price will considerably rise. And Samsung Electronics are listed in foreign stock markets, the prices will double or triple those at the domestic market.”

Young-Hae Choi yhchoi65@donga.com