Chaebols, elites lose allure among fed-up South Koreans

The South Korean national flag(left) and Samsung Electronics Co.'s corporate flag fly outside the company's Seocho office building in Seoul, South Korea.
The South Korean national flag(left) and Samsung Electronics Co.'s corporate flag fly outside the company's Seocho office building in Seoul, South Korea. PHOTO: BLOOMBERG

Spate of scandals prompts calls for reform of conglomerate structure

While many of her friends were cramming madly to land a coveted job in one of South Korea's chaebols, or conglomerates, Ms Yoon Jie Min was instead preparing for an exam she had to pass to become a civil servant.

The 29-year-old, now a start-up founder, is not a fan of these family-owned enterprises that dominate Asia's fourth-largest economy.

"I've always been sceptical about what they do. The media has always shown the bad things that chaebols do, like avoid paying taxes and lobbying issues, so I assumed that they never do their business honestly," she told The Sunday Times.

Once revered as powerful engines of South Korea's economic miracle, the country's untouchable chaebols have seen their reputation dragged through the mud in recent years because of scandals, corruption allegations and reports of chaebol offspring misbehaving in public.

Korean Air heiress Heather Cho in 2014 threw an infamous tantrum on a plane over nuts served and ordered the jet, which was taxiing off, to return to the departure gate in New York.

Once revered as powerful engines of South Korea's economic miracle, the country's untouchable chaebols have seen their reputation dragged through the mud in recent years because of scandals, corruption allegations and reports of chaebol offspring misbehaving in public.

In December, the son of cosmetics tycoon Lim Byung Sun turned violent on a Korean Air flight, prompting American singer Richard Marx to help subdue him.

The recent scandal surrounding President Park Geun Hye, undeniably the largest in South Korean history, has exposed the cosy ties between chaebols and the government, and how easy it was for the presidential Blue House to exert pressure on chaebols to donate millions of dollars to two non-profit groups started by Ms Park's close friend, Choi Soon Sil, allegedly for Choi's own gain.

The Samsung Group, the country's largest chaebol, bore the brunt of the saga, with Samsung scion Lee Jae Yong arrested this month. Prosecutors accuse the 48-year-old vice-chairman of giving 43 billion won (S$53 million) in bribes under the guise of donations to Choi's organisations, in return for government support for a 2015 merger of two Samsung affiliates to pave the way for his succession.

Chaebol corruption and embezzlement scandals are common and many chief executives who land in jail often end up getting presidential pardons, the latest being SK Group chairman Chey Tae Won, who was pardoned in 2015 after serving 31 months in jail for embezzlement.

The long-term absence of the executives is said to be detrimental to their companies' performance as chaebols are structured in such a way that key decisions are made by the owner family's point man.

Presidents, including Ms Park, have promised chaebol reform, but implemented nothing significant.

Calls for change, to the point of disbanding chaebols whose top- down hierarchical work culture is deemed outdated today, have risen in the wake of the Park scandal.

This is especially when liberal- minded young people seem to have lost respect for third-generation chaebol heirs and heiresses who get fortunes on a silver platter and have yet to prove their worth.

South Koreans have a love-hate relationship with chaebols, but there is little room left for love now, said former business journalist June Ji. "Now, people ask for high morality and ethical standards. But many third-generation chaebols make headlines for punching or abusing someone, and their malpractices go viral before they can prove their capabilities at work."

For Samsung, which contributes more than one-fifth of the country's gross domestic product, Mr Lee's arrest could not have come at a worse time.

Samsung's reputation has already been damaged by last year's exploding Note 7 phablet saga - its ranking on America's Reputation Quotient just plunged from 7th to 49th place this year - and observers worry if it can withstand a leadership vacuum.

"Samsung needs a boss," said the mainstream daily JoongAng Ilbo, urging the chaebol to appoint an external expert as its chief executive to change its corporate image.

Ms Ji said Samsung might try to negotiate for Mr Lee's release by "sending signals that Samsung is powerful and important, but without Lee Jae Yong, they cannot make final decisions like creating jobs in this economic recession".

Mr Lee's absence, if sustained, will hurt Samsung's efforts to adjust its business portfolios by selling or reducing non-core businesses, according to Seoul National University professor Song Jae Yong, who wrote the book, The Samsung Way.

But in the short term, impact will be limited. "I don't think Samsung's performance will deteriorate due to this scandal because Samsung has developed strong professional managers and management systems," said Professor Song.

Keen to distance themselves from the Park scandal, chaebols including Samsung have started pulling out of a powerful chaebol lobby group accused of bribing politicians for business favours.

National University of Singapore Business School professor Chang Sea Jin, who wrote the book Sony Vs Samsung, urged chaebols to strengthen their corporate governance system and hire professionals to run their business empire, instead of relying on hereditary succession.

But in the eyes of some, chaebols can do no wrong.

"Everyone has a skeleton in his closet. Every company has its faults," said office manager Marcus Cho, 45. "We should not forget how chaebols contributed to the development of Korea's economy."

A version of this article appeared in the print edition of The Sunday Times on February 26, 2017, with the headline 'Chaebols, elites lose allure among fed-up South Koreans'. Print Edition | Subscribe