[Opinion] Model of Modern Enterprise

New governments in this country have called for a reform of conglomerates called `Jabeol` and the Roh government is no exception. They are now talking about limiting amounts of capitalization, dissolving restructuring units of large businesses, splitting financial service subsidiaries and pushing for collective suits, which sound sharp-edged. The press is rushing to guesswork what the new government`s Jabeol policy will be like to make catchy headlines, and the Federation of Korean Industries has decided to hold a top-level meeting earlier than originally scheduled, indicating that they are now feeling uneasy.

▷President-elect Roh says emphatically that Jabeols and large businesses are different. There is nothing wrong with a large business expanding its operations on its own, but the Jabeol system, in which a family owns and runs the entire group through succession, must be addressed. He thinks it is not right for a head of a Jabeol, who owns less than a 2% stake in the business, wields a great influence on all of the affiliates by leveraging a cross-guarantee. As a leader of a country himself, he may as well want to address the imbalance between the great power the business head exercises and the low risk he is exposed to.

▷When it comes to a model of modern enterprises, we often reminds of the book `Modern Enterprise and Properties` written by Adolph Burl and Gardiner Minz in 1932. The book describes an enterprise as a business in which shares are held among a large number of people and a professional manager head the operations. This `modern enterprise` system has revolutionized the management of business in developed countries. Jabeol reform advocates with Presidet-elect Roh seem to hope that the system will change the business environment in this country better. I am not saying this to take side with Jabeols, but even in developed countries, there are only a small number of large businesses in which ownership and management are separated.

▷A research team led by professor La Porta at Harvard University in 1999 conducted a survey on ownership structure among top 20 businesses in 27 developed countries. According to the survey, the ownership was extensively shared in only about one third of the surveyed, while majority were owned and managed by families. For instance, 62% of the larges businesses in Sweden were owned by families, with the Ballenberry family owning the largest business in the country holding an almost 40% stake in 14 stock market-listed affiliates. Still, the Stockholm stock market is drawing a number of foreign investors, a fact that makes us wonder how come the `pre-modern enterprise` system and the free market can co-exist.

Lee Chan-geun, Guest Editorial Writer, Incheon University, ckl1022@incheon.ac.kr

Mun Myeong-ho, Editorial Writer, ckl1022@incheon.ac.kr