A bad year for the chaebols

Samsung headquarters

The verdict is in. Briefly put, 2018 was a bad year for the chaebols. A very bad year.

This news should not come as a big surprise to regular readers of this site.

In recent months, we’ve seen that entrepreneurs in South Korea have become increasingly outspoken in their resentment toward the giant family-run conglomerates, whose massive power enables them to smother competitors in their cradles.

Hyundai headquarters

We’ve seen that the chaebols’ continued dominance of the South Korean economy, by preventing the flowering of major new firms, has kept that economy from growing as fast as it used to.

We’ve seen that South Koreans generally are getting more and more tired of the privileged position of chaebol families, one consequence of which is that corruption in their ranks routinely goes unpunished.

LG headquarters

Not least, we’ve seen that foreign chaebol stockholders who have begun to challenge the distinctively South Korean policies that deny those stockholders the ability to influence major chaebol decisions, even if they own bigger shares of the companies than the ruling families do.

Now all of these critics of the chaebols have more ammunition to use against the system. On December 27, 2018, it was reported that South Korea’s ten largest chaebols experienced a twenty percent reduction in market value over the course of 2018.

SK headquarters

That’s a stunning number, especially given how robustly other Western economies – such as that of the U.S. – performed during the same year.

By the end of 2018, the combined value of the top ten chaebols was $173 billion. All by itself, Samsung, the largest of the chaebols, accounted for half of the loss. One of the companies that make up the Samsung Group, Samsung Electronics, dropped a full 30 percent in value.

Hanjin headquarters

But Samsung wasn’t alone in bleeding badly. LG Group lost 21 percent of its value. SK and Hyundai also posted huge losses. Only two major chaebols – Hyundai and GS – had a good year.

Obviously, these lousy results aren’t good news for the legendary families that run the chaebols. On the contrary. They also mean that shareholders in these firms lost a lot of money. And given the central importance of the chaebols to the South Korean economy, these figures will have a negative impact on South Koreans as a whole.

Then again, this isn’t entirely bad news. A dramatically poor showing almost all the way across the chaebol board may well help speed efforts at substantial systematic reform. One South Korean president after another has promised such reform and failed to deliver. The current president, Moon Jae-in, installed a so-called “chaebol sniper” who has proven to be a paper tiger.

Moon Jae-in

Repeatedly, critics of the chaebols have been told that the chaebols are simply too vital to the South Korean economy to justify major overhauls. Break up Samsung? Knock the chaebol dynasties down a peg or two? Impossible! But numbers like the ones we’ve seen here may open up more people in power to the possibility of real change. South Koreans won’t endure too many years of chaebol contraction without accepting – indeed, clamoring for – radical transformation.

In short, 2019 promises to be an interesting year for the chaebols. Stay tuned.

Marriage, chaebol style

 

Yes, they are royal families.

There’s nothing quite like them anywhere else in the world. The clans that run the South Korean chaebols – the relatively small number of sprawling, internationally famous conglomerates that have dominated that country’s economy since not long after the Korean War – have long been viewed as royal families. The top executive positions at these companies pass down from generation to generation; the men (they are almost invariably men) who hold these offices wield enormous power over the nation’s political class; and the sons and daughters of these bosses are celebrities, whose social lives are followed closely in the popular media, and who are often, indeed, described as princes and princesses.

Hyundai headquarters, Seoul

One thing that these chaebol families have in common with actual royal dynasties is the high level of intermarriage between them. According to a new survey, 49.3% members of the founding generation of the chaebol clans – the people who actually established these firms in the second half of the last century – are or were married to spouses who also belonged to families that founded chaebols. Among members of the second generation of chaebol ruling families,the figure is even higher: 52.7% of the people whose parents founded chaebols married other people who parents also founded chaebols.

In South Korea, just as the management of chaebols is almost universally dynastic matter, politics is also very often a family game. Former President Park Geun-hye, for instance, who is currently behind bars because of her involvement in chaebol corruption, is the daughter of former President Park Chung-hee. Many chaebol family members who do not marry into other chaebol families have, instead, married into powerful political families, which both reflects and reinforces the intimate ties that bind chaebol CEOs and Chairmen to officials at the highest level of the South Korean government. Among members of the first generation of chaebols, 23.4% were or are married to members of “powerful” political families; in the second generation, this figure declined to 7.4%.

Park Geun-hye

The survey produced some other interesting findings. Of all the chaebols, the GS Group, had the highest number of “in-law relations” with other chaebols, namely seven. GS, like most of these conglomerates, is highly diversified, although in its case there is a particular emphasis on oil, gas, and other energy-related products. The second chaebol on the list, with six “in-law relations,” was the LS Group, which manufactures power cables, electrical equipment, machinery, and other such products.

Why does any of this matter? Because these statistics serve to reinforce the perception, on the part of many ordinary South Koreans, that their country – in which democracy has, admittedly, made great strides over the last several decades – is still, to a deplorable extent, governed by a network of business and political kingpins, people who are tied to one another not only by shared financial interests and systematic corruption but, yes, by the most intimate of family bonds.