Restriction on Voting Right of Chaebol Leaders to Financial Subsidiaries

The Korea Fair Trade Commission (KFTC) is poised to come up with a plan for a comprehensive improvement of market shortly after the upcoming launch of the new government. The plan would restrict the voting right of large conglomerates to their financial subsidiaries including insurance companies and strengthen the restriction on the total amount of investment by corporations` owners. In addition, the KFTC plans to raise the compensation for whistle-blowers of cartel to 100 million won.

The KFTC reported Thursday its “policy on chaebol and competition” including such plans to the National Policy Committee of the National Assembly.

In order to prevent a head of chaebol from having a greater power by taking advantage of financial subsidiaries, the commission decided to come up with a plan that will put a restriction on the voting right to such subsidiaries and introduce a system to request for separating subsidiaries. It will submit the amendment of the related law to the National Assembly. It is also set to reduce the exception range of the system to restrict the total amount of investment and prevent chaebol from cross debt payment.

To that end, the KFTC announced that it would organize a joint team with the related ministries such as the Financial Supervisory Commission (FSC) right after the inauguration of President-elect Roh Moo-hyun.

Along with that, the commission will try to amend a law so that it can fully disclose the structure of shares of conglomerate leaders and their relatives, which was brought to light in the course of investigation. The KFTC explained that it was difficult for them to make public the detailed contents of the investment that was found during the investigation due to its duty to keep the secret of businessmen according to the fair trade law.

Moreover, the KFTC will strengthen the restriction on cartel and raise the compensation for whistle-blowers to the maximum 100 million won from the previous 20 million won without calling them to account.

Those who received the compensation according to the system introduced last year were only one so far, with only 6 million won.

The commission decided to fix the standard of cartel penalty, about 5 % of the related sales, to impose much more amount of penalty than the excess profit.

The KFTC selected the electricity, banks and non-banking sectors (particularly installment finance companies), Internet shopping malls, constructions of residence-commerce complex building, advertising, and professional certificates as targeting fields of this year`s market improvement.

Eun-Woo Lee libra@donga.com