Heroes at Hanjin?

This would all make an interesting movie – full of colorful characters, intense conflict, mounting tension, and stunning reversals – except for the fact that it’s all just too sprawling a story, with too many villains and, so far, no hero.

What are we talking about here? We’re talking about the large-scale corruption at the uppermost levels of the South Korean government and business sector that, in the last couple of years, has made for some high drama, complete with palace intrigue, smoking guns, and courtroom clashes. What is required here is a screenwriter who can tame this tale and foreground a single arresting plot line.

But what to foreground? OK, take a deep breath, here goes: in the brief period since 2017, we’ve seen the removal from office – and long-term imprisonment – of South Korea’s first female president (Park Geun-hye) after she was caught doing underhanded deals, through her shady best friend (Choi Soon-sil), with top business leaders – who, as usual, went scot-free – and her replacement by a self-styled “reform” president (Moon Jae-in), who, making bold promises to rein in the power and corruption of the increasingly unpopular chaebols – those massive, family-run conglomerates that dominate that nation’s economy and that operate with impunity – installed an antitrust czar (Kim Sang-jo), widely styled the “chaebol sniper,” who started off his three-year term with a lot of tough rhetoric about cutting Samsung, Hyundai, and other chaebols down to size, only to tone down his language in recent months and talk, instead, in pathetically humble language, about requesting modest alterations in the chaebols’ organizational charts, even as the president himself began getting all chummy with the chaebol leaders, apparently having decided that he needed them on his side if he wanted to kick his country’s weak economy back into high gear.

Phew. So does that mean we’re back at square one? Not exactly. Because, as we’ve mentioned before, while President Moon and his “sniper” seem to have dwindled into impotence and irrelevance, the cause has been taken up by some of the people who actually own sizable chunks of the chaebols but who, in keeping with the curious (indeed, unique) traditions of the chaebols, have been systematically denied any meaningful input into the governance of the conglomerates. The bizarre fact, which remains unchanged, is that in most cases, the families that founded the chaebols and that still hold the key leadership positions in them don’t own a majority or even a plurality of shares in those firms. Indeed, some of the chaebol royal families would, under ordinary Western circumstances, be considered negligible minority stockholders.

No surprise, then, that as the South Korean economy falters and the chaebols, immense though they are, look more and more as if their best years are behind them, investors – most of them foreigners, many of them Americans – who have plunged large sums of money into the chaebols are increasingly frustrated at their own lack of power to initiate significant changes. The unfortunate truth is that while the men who founded the chaebols were business wizards, their children and grandchildren, who now sit behind the big desks in the corner offices, don’t necessarily have what it takes to run some of the world’s largest corporations. Meanwhile, many of those investors have proven track records at turning failing businesses around – at spinning off or closing down certain subsidiaries, at recognizing the need to hire or fire certain executives, and at successfully restructuring extraordinarily diversified conglomerates to maximize efficiency and profits.

So it is that, as Kim Jaewon of Nikkei reported on January 21, Korea Corporate Governance Improvement (KCGI), a newly founded South Korean activist fund that is now the second largest shareholder in the Hanjin Group (whose most famous holding is Korean Air), is pushing it to sell its hotel chain, which includes the Wilshire Grand Hotel in L.A. and the Waikiki Resort Hotel in Hawaii, and to form an independent committee that would select Hanjin’s CEO and other top leaders. Now that would be real reform – a change in policy that would actually make it possible to remove from office the scarifyingly rich and corrupt members of one of the chaebol royal families – in this case, the notorious Cho clan, which owns 29% of Hanjin – and replace them with new, competent, and even (could it be?) clean outsiders.

Such a transformation would mean the departure of company chairman Cho Yang-ho, who last year was indicted on embezzlement charges; of his wife, who has been probed for smuggling; of his daughter Cho Hyun-min, who was accused of assaulting an ad-agency executive; and of another daughter, Cho Hyun Ah, whose outrage at a flight attendant who served her macadamias in a bag and not on a plate led to a scandal and a legal mess that made headlines worldwide. In short, it’s a family that Hanjin, and South Korea generally, would be much better off without.

Bottom line: the protagonists in this drama may turn out, in the end, to be these so-called activist investors. Screenwriters, stay tuned.

Posted on February 7, 2019January 29, 2019 by usefulstooges 0

Wherein we take yet another snipe at the pathetic “chaebol sniper”

Now here’s a new twist.

As we’ve recounted in some detail on this site, South Korea is going through a rough patch, economically speaking. In the decades after the Korean War, the country grew with remarkable rapidity from an undeveloped backwater into an international powerhouse. Leading this spectacular advance was a relative handful of family-run conglomerates, known as chaebols (the plural in English is often rendered as “chaebol”), whose names – Samsung, Hyundai, etc. – have become famous around the world.

For decades, the chaebols were the engines of the South Korean economy. The nation’s populace looked up to them. The dearest hope of South Korean parents was that their kids would someday go to work for one of the chaebols. In recent years, however, there has been a discernible shift in public attitudes toward the chaebols. For one thing, they’ve increasingly been seen as crowding out new businesses and thus stifling both competition and innovation – thereby making it hard for the South Korean economy to grow even further. For another thing, as ordinary South Korean citizens have grown more and more accustomed to the idea of democracy and equal treatment under the law, they’ve also grown tired of the shameless double standards that have allowed the chaebol dynasties to get away with corruption on a massive scale.

When Moon Jae-in became president in 2017, he promised to clean up the chaebols. Other presidents before him had made the same promise – among them his immediate predecessor, Park Geun-hye, who is now in prison because of illegal transactions with chaebol kingpins. But Moon insisted he really intended to tackle chaebol corruption. To prove it, he put the nation’s Fair Trade Commission in the hands of a fellow named Kim Sang-jo, who called himself the “chaebol sniper.” One gathered that President Moon had put the toughest guy he could find on the job – a sort of cross between Clint Eastwood’s Dirty Harry and the Charles Bronson character in Death Wish. A fella who would make the bigwigs at Hyundai and Samsung tremble in their office towers and give them nightmares in their lavish mansions.

In fact, when it came to scaring the heck out of South Korea’s industrial giants, Kim turned out to be more like Kim Novak than Clint Eastwood. As we’ve noted, Kim, who at first came out with guns blazing, has more recently presented himself as a “reasonable reformist” who wants to nudge the chaebols, ever so gently, toward “evolutionary reform.” On January 3, in response to an extensive interview with Kim that appeared in the Korea Herald, we concluded that Kim was now yet another public official in Seoul whose posture toward the chaebols was that of a “servile brownnoser.”

Samsung honcho Jay Y. Lee being arrested last year for massive corruption; in accordance with time-honored South Korean practice, he was later given a suspended sentence

Well, it turns out that the Korea Herald story wasn’t the last word on Kim Sang-jo. On January 17, Kim Jaewon and Sotaro Suzuki reported in the Nikkei Asian Review that the sometime “chaebol sniper” was now – gasp – actually taking an adversarial position toward the chaebols. Or, at least, toward the people who run them. The ruling chaebol families, said Kim, “have lost the aggressive entrepreneurship that was shown by the generations of their founding grandfathers and fathers.” The current chaebol bosses, Kim continued, “were born as if they were princes in a kingdom. As the character of the families has changed, the decisive and quick decision-making process of the past has been replaced by a policy that focuses on the status quo to preserve their established power.”

True enough. Funny it took him so long to say so. Everybody else already had.

Kim went on to suggest that the people who have inherited their positions of power at the chaebols need to step down – or at least step away – from their posts, perhaps exchanging the title of CEO for that of Chairman, and choosing to concentrate on long-term strategy while allowing professional managers to make day-to-day decisions.

It doesn’t sound like a bad idea, at least to start with. But is Kim going to use his power to pressure the chaebol dynasties to do this? Or was this simply meant to be a modest suggestion from a man who, with every major media exposure, seems more and more determined to project a modest image? Apparently the latter. For Kim then went on to say: “If you thought I am a chaebol killer, you misunderstood me. The only way to succeed in chaebol reform is to make it predictable and sustainable.” Meaning what? Well, one’s first reaction is that this comment seems to have been formulated in such a way as to mean just about anything to just about anybody. It’s not a policy statement but a political slogan, every bit as empty and meaningless as “hope and change” or “stronger together.” No wonder both Moon and Kim are plunging in the polls.

Posted on January 29, 2019January 24, 2019 by usefulstooges 2

A new Moon

It’s a new year – and a new Moon Jae-in. Before he became president of South Korea, Moon referred to the chaebols – those hugely successful but profoundly corrupt and immensely powerful family-run conglomerates that dominate that country’s economy – as a “deep-rooted evil.” When Moon rose to the presidency in May 2017, he promised a serious campaign of chaebol reform. Yes, several of his predecessors had made similar promises, but Moon said his promises were for real. He appointed a so-called “chaebol sniper,” one Kim Sang-jo, whom he tasked with bringing the chaebols to heel.

In the more than year and a half since his inauguration, however, the South Korean people have seen very little in the way of reform. Once again, the promises have proven empty. As we saw a couple of weeks ago, Kim, in a recent interview, presented himself not as an anti-chaebol warrior but as a “reasonable reformist” who respects the chaebols and, far from cutting them down to size, seeks to render them competitive through “evolutionary reform.”

Now Moon, too, is singing a new tune. As the Korea Times reported on January 6, “the President appears to be expanding communication channels to win backing from the country’s leading industrial conglomerates.” According to a spoksman for Moon, the President planned to meet with chaebol leaders some time in January and would ask them “to hire more and spend more,” in exchange for which his government would provide increased “tax benefits and administrative support.” Partly in order to win votes from younger members of the electorate who are in the job market, according to top government officials, Moon needs “to reach out his hands to Samsung, LG, SK and Hyundai,” the country’s “top four family-controlled businesses.”

That’s quite an about-face, even by high-stakes political standards. The man who vowed to be an anti-chaebol crusader is now going to the chaebols, hat in hand, and begging them for what is essentially a political favor – and, in response, offering to cut their taxes. In other words, it’s back to business as usual in South Korea, with the head of state and the chaebol kings scratching each other’s backs.

Already, reported the Times, “chief presidential policy chief Kim Soo-hyun met with senior executives at Samsung, LG and SK in a Seoul hotel late last year” in order to set the groundwork for the shift in approach. The question, it seems, is not whether Moon plans to woo the chaebol bosses; it is how the bosses will respond to his bootlicking.

You see, they’re not all that happy with Moon, partly because of the aggressive anti-chaebol rhetoric with which he started his administration, and partly because his hike in the minimum wage has blunted their competitiveness abroad. It’s predicted that South Korean economy will grow only 2.5 percent this year, and the chaebols put a lot of blame for that at Moon’s feet.

The worm, then, has turned. The sometime chaebol slayer has become a servile brownnoser, trucking to the big boys at the “big four” – Samsung, Hyundai, LG, and SK – and hoping that they’ll respond positively to his kowtowing.

Posted on January 17, 2019January 9, 2019 by usefulstooges 0

Finally: street protests against chaebol corruption!

On this site we’ve been reporting for some time on the lavish vows by South Korean President Moon Jae-in to reform the chaebols, those massive family-run conglomerates that have served as the foundation of that country’s economy since not long after the Korean War – and that have increasingly been viewed with disfavor by that country’s citizens because of their extraordinary levels of corruption, nepotism, and impunity, not to mention their power to choke potential competitors in the cradle.

We’ve introduced our readers to Kim Sang-jo, not exactly intimidating man who was supposedly delegated by Moon with the task of challenging chaebol corruption and who, laughably, calls himself the “chaebol sniper.” And we’ve discussed the chaebol shareholders who, after years of biting their tongues, are finally starting to rebel against the bizarre system whereby clans that own only a small percentage of their companies nonetheless rule them with an iron hand.

Now comes some encouraging news. On November 21, with the backing of the Korean Confederation of Trade Unions (KCTU), more than 150,000 South Korean workers walked out of factories at firms like Samsung and Hyundai in protest against the utter failure of Moon’s government to come across with the chaebol reforms he promised.

The KCTU did not mince words in describing the situation in South Korea. “There has not been any real progress in chaebol reform,” it said. The KCTU added: “We think our labour rights as well as corporate reform have actually worsened under the Moon administration.”

The KCTU further noted that the chaebol kingpins Lee Jae-yong (Samsung) and Shin Dong-bin (Lotte) had recently been arrested, tried, and convicted of bribing former President Park Geun-hye (who left office in disgrace because of the scandal) only to be given suspended sentences. Such special treatment for chaebol top guns is a longstanding tradition in South Korean politics and jurisprudence, and one that is making the nation’s citizens increasingly restive.

Hence the worker walkout.

That November 21 protest, moreover, was only one part of a growing nationwide uprising against President Moon. Every weekend of late, South Koreans have poured into the streets of Seoul in huge numbers to express their rage over Moon’s failure to keep his pledges. Describing these demonstrations as “raucous,” the Financial Times noted that while President Park and another former president, Lee Myung-bak, have ended up behind bars for corruption, the chaebol masters who were involved in the same acts of corruption still seem to be above the law.

According to FT, the probability that a chaebol boss convicted of corruption will get a suspended sentence exceeds 70% – while the comparable rate among non-chaebol leaders is 40%. As for poor schlubs who are found guilty of “street crimes,” such as petty theft, only 20% of them can expect to have their sentences suspended, even though the scale of their crimes is, of course, outrageously trivial compared to the monstrous malfeasances routinely committed by chaebol royalty.

Posted on December 6, 2018December 5, 2018 by usefulstooges 1

One ex-prez down, several chaebol CEOs to go

In recent weeks, we’ve been reporting – with a good degree of skepticism – on claims by the South Korean government that it’s engaged in a serious, vigorous, and comprehensive effort to curb the power of the nation’s largest capitalist monopolies. We’re referring, of course, to the chaebols, those massive, family-run conglomerates (including Samsung, Hyundai, and LG) that have dominated the South Korean economy over the last half century and more – so much so, indeed, that they routinely kill potential competitors in the womb and thus (as has been increasingly recognized and resented) stifle economic growth, discourage entrepreneurship, and squelch innovation.

Our skepticism on this front has been undergirded by such events as the sudden and unexpected release from prison, earlier this year, of Jay Y. Lee (Lee Jae-yong), the vice chairman and de facto head of Samsung (and arguably his country’s most powerful figure), after serving only a few months of a five-year sentence for corruption.

As if his release weren’t disappointing enough, Lee has since been invited by President Moon Jae-in, who poses as an anti-corruption warrior, to accompany him and a group of other chaebol bosses on a flight to Pyongyang, where they all explored possible business ties with the fanatically totalitarian, slave-labor-dependent Kim regime. Some reform!

Well, there’s news from the supposed chaebol wars. No, a chaebol bigwig hasn’t been tossed in the clink. But another nabob has. On October 5, seventy-six-year-old Lee Myung-bak, who was President of South Korea from 2008 to 2013, was jailed for corruption. Arrested on March 22, he had been charged with receiving hefty bribes from Samsung and other firms, embezzling funds from the government treasury that had been appropriated for use by the nation’s intelligence services, and embezzling $21 million from an auto parts company that he owned through his brother. His sentence: fifteen years behind bars plus a $16 million fine.

He’s not the only former president of South Korea who is currently serving time for corruption. His successor, Park Geun-hye, is six months into a thirty-three-year sentence. Two other South Korean presidents, as it happens, have also spent time in the slammer: Chun Doo-hwan, who held the high office from 1980 to 1988, and Roh Tae-woo, who succeeded Chun in 1988-93, were both convicted of bribery and sedition in 1996, and both were pardoned a year later.

If there is anything resembling reform underway in South Korea today, it may consist in the fact that corrupt presidents are now more likely to serve out their terms instead of being pardoned after a brief period of incarceration. But of course it remains to be seen whether Park and Lee are in the can for the duration or whether, like Chun and Roh, they’ll get sprung after the headlines die down. In the meantime, the self-styled “chaebol sniper,” Fair Trade Commissioner Kim Sang-jo, has yet to prove that he’s prepared to be as tough on current chaebol leaders as on the former presidents – who are, after all, being put away for engaging in illegal shenanigans with those very leaders.

Posted on October 9, 2018October 5, 2018 by usefulstooges 1

Reforming chaebols? Or sucking up to Kim?

When it was announced last year, with big fanfare, that South Korea had finally gotten serious about tackling the outsized power of the chaebols, we were instantly cynical. This was, after all, hardly the first time that the government in Seoul had vowed to put Samsung, Hyundai, and the other family-run conglomerates in their place. But it never happened. Instead, the same old pattern continued: the chaebols kept throwing their weight around, kept paying huge bribes to public officials in exchange for laws, permits, and exemptions favorable to their business activities, and using their near-monopolistic market positions to smother fledgling firms in their cradles. Every now and then the head of a chaebol would get put on trial for corruption, and inevitably the case would either go away or the boss man, after being found guilty, would be given a get-out-of-jail-free card.

The latest case in point was that of Jay Y. Lee (Lee Jae-yong), vice chairman and de facto head of Samsung, who was sentenced to five years in prison last year only to be freed this year. On September 18, President Moon Jae-in, who not so long ago had essentially declared zero tolerance for chaebol corruption, hopped on a place with Lee and other chaebol honchos and flew with them to Pyongyang to explore the possibility of doing business with the Hermit Kingdom, perhaps even building factories in that totalitarian land. Even as their exploratory talks with Kim Jong-un were underway, Moon’s corruption czar, Kim Sang-jo, head of the Fair Trade Commission, was making his informal title of “chaebol sniper” look pathetic.

“With exports of semiconductors one of the few bright spots in an economy that’s showing signs of strain,” noted Livemint, the Indian business news website, on the day Lee & co. jetted northwards, South Korea’s “reliance on its most profitable company is deepening and thus reducing regulatory pressure on Samsung.” Chung Sun-sup, a corporate analyst, confirmed that the South Korean government “needs Samsung now.” Bruce Lee, CEO of Zebra Investment Management, agreed that the nation’s faltering economy “means a halt in chaebol reforms.” And Kwon Young-june, an expert in corporate governance at Kyung Hee University, concurred. “Reforms are dying on the vine,” he said. “The government will find itself more and more in need of conglomerates as long as it is fixated on quick results rather than long-term reforms.”

Indeed, by escorting the chaebol kingpins to Pyongyang, Moon was doing the very opposite of what he had promised: rather than limiting the power of the chaebols, he was doing his best to expand their power. What kind of head of state lowers himself to the role of chaperon, escort, cicerone, sherpa? With this one move, Moon provided the whole world with a vivid illustration of where the power really resides in South Korea. Did he serve them coffee on the plane, too?

But that wasn’t all. Far from curbing chaebol criminality, Moon was taking actions that seemed likely to invite criminality. North Korea, after all, is subject to strict international sanctions that would almost certainly be violated by any significant business arrangement with the chaebols. Lee Seok-ki, a researcher at the Korea Institute for Industrial Economics and Trade, told the Korea Joongang Daily that “if we only look at the cost side, North Korea has more labor cost effectiveness than any other country on the planet – even Vietnam and China.” Well, yes – making use of slave labor by people who are forced to live on starvation diets tends to bring down wages. Surely, to any decent observer, the very idea of the filthy-rich chaebols maximizing their profits by employing the brutalized subjects of the Kim dynasty is as reprehensible a business proposition as one could imagine – and is also, of course, as far as possible from any concept of reform.

Posted on October 2, 2018September 19, 2018 by usefulstooges 0

“Chaebol sniper” or chaebol masseur?

Last January, the Economist offered an optimistic forecast of the future of South Korea’s economy under Kim Sang-jo, that country’s newly appointed antitrust czar. Kim’s task, during his three-year term, was to “tame the chaebol,” those massive, family-run corporate conglomerates that were the engines of South Korean economic growth after since the Korean War but that in recently decades have increasingly served as a hindrance to further growth – and, in particular, to the establishment and successful development of small businesses. (The Korean language even has a word – gapjil – for the way in which the chaebol bully more modest-sized enterprises.) Moreover, the chaebols, which were once universally admired for having led South Korea out of Third World status, are now more and more the objects of public resentment because of their top leaders’ chronic corruption and impunity.

At the time of his appointment, Kim, a former activist for the rights of shareholders, enjoyed the strong backing of President Moon Jae-in as well as of the great majority of his countrymen, who refer to him as the “chaebol sniper.” All these months later, has he lived up to that nickname? How much, exactly, has he accomplished?

For a close reader, the article in the Economist contained a few hints that Kim might, in fact, prove to be something less than a bull in the chaebols’ china shops. “The sniper,” we read, “would rather his targets surrender willingly and is encouraging ‘voluntary’ reform.” Some sniper! Indeed, the Economist admitted that some critics of the chaebols “carp that Mr Kim now seems to be more chaebol sympathiser than sniper,” though the Economist was quick to assure us that this view of Kim was “unfair.”

Fast forward five months. Kim, reported the Korean media, was accusing the Hanjin Group, the parent company of Korean Air, of “breaching market rules.” At a press conference marking the end of his first year on the job, the “chaebol sniper” lamented the standard practice by chaebols of doing business with, say, real-estate firms and ad agencies that are affiliated with them rather than dealing with independently owned firms in those same sectors. “I honestly ask conglomerates,” said Kim, “to sincerely review if it necessarily needs these businesses that are owned solely by their controlling families.”

Wow, tough talk!

Kim said his agency had “tried to work on encouraging conglomerates to change their…management practices.” Tried? Encouraging? “We’re seeing positive changes,” he said, but “we still have a long way to go.” He said he regretted “not being able to bring changes that the public can actually feel,” and admitted that some observers might feel that his achievements thus far had fallen “short of expectations.”

No kidding. Is this a sniper or a masseur?

Posted on September 27, 2018September 18, 2018 by usefulstooges 1

South Korea: tame chaebol reform, or none at all?

In South Korea these days, the billion-dollar question is this: is the administration of President Moon Jae-in serious about reforming the systematic corruption that’s been a national institution ever since Samsung, Hyundai, LG, and the other so-called “chaebols” began dominating its economy?

The history of chaebol criminality – which has largely taken the form of bribes to top government officials – goes back to the years following the Korean War. For decades, the South Korean public has increasingly cried out for reform. President Moon, who took office last year after his predecessor, Park Geun-hye, was removed from office on corruption charges, has called chaebol corruption a “deep-rooted evil.”

But does he mean it? Or are the stiff sentences handed down in August to Moon’s crooked predecessor, Park Geun-hye, and her friend and partner in crime, Choi Soon-sil, a fluke?

Then, of course, there’s the other, depressingly familiar, possibility: will Park and Choi, like their fellow crook, Samsung chief Lee Jae-yong (aka Jay Y. Lee), and a raft of convicted CEO-felons and presidents before him, end up being let out of jail on some technicality that leaves the entire country even more cynical about their judiciary’s dedication to equality before the law?

Well, so far Park and Choi remain behind bars. And only days after their conviction was affirmed – and their sentences enhanced – by a high court, South Korea’s Fair Trade Commission (FTC) proposed new rules to govern the chaebols. The head of the FTC, Kim Sang-jo, who has acquired the nickname “the chaebol sniper,” has declared his determination to take on the ownership strucures of the two largest chaebols, Samsung and Hyundai.

An abiding problem at these and other conglomerates has been that the families that founded them still rule them like kings, routinely making sweeping managerial decisions while ignoring the input of shareholders. Kim’s stated goal is to diminish the power of those families, whose grip on their conglomerates well exceeds their relative value of their ownership shares in those conglomerates.

How to address that problem? Well, under current regulations, a chaebol must own at least 20% of its listed subsidiaries and 40% of unlisted units. Kim’s new rules would raise those figures to 30% and 50% respectively.

That’s not all. Members of a chaebol’s founding family would not be allowed to have more than 15% of the voting rights in a listed affiliate of that chaebol. Other new rules would also limit the power of corporate kingpins to pull off mergers or spin off subsidiaries without shareholder support. They would also clamp down on circular shareholdings and other intra-conglomerate machinations and intensify disclosure requirements.

Yet in the eyes of serious observers, the commission’s proposed changes are too little, too late. “I would give 20 points out of 100, a basic score, to what the Moon government has done for corporate governance reform,” Bruce Lee of Seoul-based Zebra Investment Management told Bloomberg News.

Commentator Robyn Mak called the proposed new regulations “the first rewrite of antitrust rules in nearly four decades,” but added that given the slow growth of South Korea’s economy, the chaebols are in the catbird seat. “That means corporate governance reform probably will wind up weaker than originally anticipated.”

Indeed, modest though Kim’s proposed changes are, “Moon will struggle,” maintained Mak, “to gain political support to enact some of the new ideas.” We’ll keep abreast of developments.

Posted on September 18, 2018September 8, 2018 by usefulstooges 0

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