Has Hanjin’s ship sailed?

Hanjin HQ in Seoul

The Hanjin Group is one of South Korea’s largest family-owned conglomerates – or, as they say in Seoul, chaebols. It owns Korean Air and Jin Air, and has major holdings in shipping and industry. And like the other chaebols, it is at once admired for its wealth and power, notorious for its endemic corruption and shady political ties, and resented for the ease with which it can crush competition by upstart entrepreneurs as well as for its executives’ ability to routinely escape punishment for even the most egregious acts of embezzlement, money laundering, and bribery.

As we reported last week, a newly hatched activist fund called Korea Corporate Governance Improvement (KCGI) – which is now Hanjin’s second largest shareholder – is pushing for reforms of the sort that one South Korean government after another has promised for decades and that the current president, Moon Jae-in – who, upon taking office in 2017, insisted would be a central objective of his administration – has utterly failed to carry out.

Moon Jae-in

Now, as we noted, KCGI is seeking to get Hanjin to sell off its hotel chain, which includes major hostelries in Los Angeles and Hawaii, and – in a truly radical move – to force the firm to ditch the traditional practice that is at the heart of chaebol culture: namely, the passing on of top leadership positions from one generation of the company’s founding family to the next. Instead, KCGI wants Hanjin to agree to have its leaders appointed by an independent committee.

We’re still waiting to see how that drama works itself out. Meanwhile, a new subplot has developed – one that underscores the fact that the once seemingly invincible chaebols have entered a new era of vulnerability. At this point it should be noted that in 2016, a division of Hanjin, Hanjin Shipping, declared bankruptcy and was liquidated. It had been the world’s seventh largest container shipping line. The loss of Hanjin Shipping was a major blow to Hanjin, to the chaebols, and to the South Korean economy.

Hanjin’s shipyard at Subic Bay

Now Hanjin is facing another significant loss, also involving shipping. Hanjin Philippines is a division of the chaebol that runs a shipyard at Subic Bay, the former U.S. naval base. It is the biggest shipyard in the Philippines, and one of the biggest in the world, and has been a cornerstone of the Philippines’s ambition to become a top-flight shipbuilding nation.

Hanjin Philippines, however, has not been doing well. In January, the division, which has massive assets but is cash-poor, declared bankruptcy, defaulting on $400 million in bank loans – the largest such bankruptcy in the history of the Philippines and an event that was described as being, for the world’s shipping sector, equivalent to the collapse of Lehman Brothers. It filed for “court-assisted rehabilitation,” meaning that it wanted the courts to help it arrange debt payment with five banks in that country that had lent it a total of $412 million.

An image from the glory days of Hanjin Shipping

This month, it was reported that Hanjin Philippines might soon have to let go of thousands of employees, and that several other international corporations, most of them based in Europe but one based in North America, might be willing to help Hanjin out by snapping them up. Another report indicated that “at least two major Chinese shipbuilders” were looking into a much more sweeping move – namely, taking over Hanjin’s entire operation in the Philippines.

This would be a drastic development indeed. For one thing, a Chinese purchase of Hanjin Philippines would also contribute to ongoing expansion of the PRC’s presence in East Asia, and would be troubling news for the U.S. and all of its allies in that region. In its own small way, it could cause a shift in the worldwide balance of power.

Part of Korean Air’s fleet

In South Korea, however, such a purchase would have an even stronger impact. Like the disappearance of Hanjin Shipping, it would not only mark yet another downturn for the Hanjin Group. It would also be a blow to South Korean national pride, which rested for decades upon the bedrock of its powerhouse economy. Not least, it would further tarnish, in the eyes of South Koreans at both the top and bottom levels of society, the already fading luster of the chaebol model. So it is that the closing or sale of a shipyard in the Philippines may have a very real impact on the volatile economic developments in the Republic of South Korea.

Heroes at Hanjin?

Kim Sang-jo, the “chaebol sniper”

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.

Park Geun-hye

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.

Moon Jae-in

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.

Choi Soon-sil

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.

Cho Yang-ho

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.

Cho Hyun-min

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.

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.

Moon Jae-in

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.

Kim Sang-jo

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.

Hyundai chairman Chung Mong-koo

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.

A rocky start for 2019 in South Korea

Moon Jae-in

In South Korea, the year has kicked off with a bang. On January 8, the South China Morning Post reported that President Moon Jae-in had made some drastic changes in his administration. Moon, who was scoring big in the polls in the months after his inauguration in May 2017, has seen his popularity erode along with his country’s economy.

How to turn things around? Fire some people. Moon has dismissed his chief of staff, his senior political affairs secretary, and his senior press secretary. No sign, however, of him doing what he actually promised to do when he took office – namely, tame the chaebols, the corrupt, family-run business empires that are at one the engines and the anchors of the South Korean economy.

Trump: taking the opposite approach

On January 10 came another tidbit of news from the Blue House (which, of course, is Seoul’s answer to the White House). While Trump was slashing taxes and regulations, reported the Australian Financial Review, Moon was trying to cure his country’s economic ills by doing the opposite. Surprise! “So far,” wrote Michael Schuman, “it has not worked out as planned.”

Joblessness is up. Growth is down. Wages are flat. Both employers and employees are restive. And small businesses are suffering. Their costs are rising, but they’re not in a position to pass those costs on to buyers. Consequently, they’re shedding employees and finding other ways to cut corners.

The Blue House

All this might have been prevented if Moon had kept his promises and tackled the Great White Whale – the chaebols. But he chickened out. He would probably reject that characterization, pointing out that his budget for 2019 contains policy changes that are intended to reduce the power of the chaebols and help out smaller enterprises.

Others might argue that these initiatives are too little, too late. That Moon, take him for all in all, is essentially kicking the ball down the field. And allowing the South Korean economy to continue experiencing the consequences of his relative inaction.

Yang Sung-tae

Then, on January 11, Choe Sang-hun of the New York Times reported on a unprecedented development in South Korea. Yang Sung-tae, a former justice of the Supreme Court, had been confronted by prosecutors over charges that he had “conspired to delay a case that could upset relations with Japan.”

The case was brought by a group of South Koreans who, during the Japanese occupation, were subjected to forced labor by such firms at Mitsubishi. Yang will probably be indicted – a first in the voluminous annals of modern South Korean corruption.

Moon’s government, then, is on shaky ground. The South Korean judiciary has experienced a major embarrassment. The country’s small businesses are even more precariously positioned than they were a couple of years ago. And the ordinary citizens of South Korea are having more and more trouble making ends meet.

But amid all this loss and insecurity and scandal, the chaebols, as always, continue to stand strong.

A new Moon

Moon Jae-in

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.

Kim Sang-jo

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.”

Jay Y. Lee, top dog at Samsung

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.”

Hyundai Motor Chairman Chung Mong-koo

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.

LG Group headquarters

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.

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.

Chaebol progress?

 

The current chapter in the history of the chaebols continues to develop in exceedingly interesting ways.

Hyundai headquarters, Seoul

As we have been discussing on a regular basis at this site in recent weeks, these massive, heavily diversified, internationally famous, and family-run conglomerates – which have dominated the South Korean economy since shortly after the Korean War, raising the nation up from indigence to prosperity even as its government moved gradually closer to real democracy – have hit on challenging times. Once engines of growth, the chaebols are now barriers to further growth, so large and powerful that they’re capable of crushing, with little effort, the development of new firms and stifling the spirit of entrepreneurship.

Samsung headquarters, Seoul

As a result, in South Korea there is hardly any way to make a respectable career in business other than to find a job at one of the chaebols. And however talented and motivated one may be, there is no way to rise to the very top of one of the chaebols unless one happens to have been born into the right family. This state of affairs has led to growing resentment toward the chaebols – a resentment intensified by the corrupt ties between the chaebol dynasties and the country’s political elites, and, perhaps most bizarre of all, by the fact that the people who hold tight to the reins of power in these conglomerates are not necessarily the same people who own the lion’s share of their stock. On the contrary, it is rare indeed for the stockholders in the chaebols to have much say at all in their actual management.

Moon Jae-in

As we’ve discussed here, and as Kim Jaewon noted in a recent article for Nikkei, South Korean Moon Jae-in, upon his inauguration in May 2017, promised major chaebol reform. To be sure, it is a tradition for newly installed South Korean presidents to vow chaebol reform. But Moon spoke so insistently about the matter that he persuaded a good many citizens of his country that he really meant to do something. As the weeks and months have gone by since he took power, however, fewer and fewer have looked upon his assurances with confidence; and, as the usual arrests for corruption have taken place, followed by the usual pardons for the chaebol executives involved and the usual prison terms for the politicians, once again cynicism about the chaebols has been on the upswing.

Lee Kung-hee, chairman of Samsung Electronics

It is in this atmosphere that a few bold chaebol shareholders are finally standing up to the perverse power arrangement that they have quietly accepted for so long. These activist investors, observed Jaewon, “have scored minor victories at Samsung and Hyundai, while the parent of Korean Air Lines has been called to account by a domestic fund.” At the head of the list of these investors, wrote Jaewon, is the New York-based Elliott Management, the world’s largest activist fund, which has been campaigning “to force Samsung Electronics and Hyundai Motor to increase shareholder returns.”

Hyundai Motor Chairman Chung Mong-koo

This campaign by activist investors has already begun to bear fruit. In early December, Samsung Electronics “retired 7% of its common stock and 8.9% of its preferred stock worth 4.9 trillion won ($4.4 billion)” in an effort to provide shareholders with greater benefits. Hyundai Motor recently announced plans to “buy 2.8 million treasury shares worth 254.7 billion won by the end of February to boost its stock price and shareholders’ value.” In December, it even took the action – surprising within a South Korean context – of “promoting several foreign executives to senior roles, a first step toward the management diversification long demanded by minority shareholders.”

Finally: street protests against chaebol corruption!

Moon Jae-in

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.

Kim Sang-jo

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.”

Park Geun-hye

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.

Lee Myung-bak

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.

One ex-prez down, several chaebol CEOs to go

Samsung headquarters, Seoul

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.

Jay Y. Lee

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!  

Lee Myung-bak

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.

Park Geun-hye

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.

Kim Sang-jo

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.

Reforming chaebols? Or sucking up to Kim?

Samsung headquarters, Seoul

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.