Impetus to change chaebol practices grows as general election draws near

The Korea Herald/Asia News Network

SEOUL — As the April general election in South Korea draws near, political parties are competitively pouring out corporate reform plans. The sudden impetus toward corporate reform could be seen as the customary practice of political parties bashing the family-owned conglomerates (known as chaebol) before a major election.

But this time, there seems to be more to it. Their attack on the chaebol is gaining traction amid a growing perception that the incumbent government’s corporate policy has only benefited chaebol at the expense of small and medium-sized enterprises. Last week, Park Geun-hye, head of the ruling Grand National Party’s (GNP) emergency leadership council, put chaebol leaders on alert by suggesting the need to strengthen regulations on fair trade. Referring to the present administration’s abolishment in 2009 of the restrictions on corporate equity investment, she said the measure failed to serve its intended purposes of stimulating corporate investment and creating decent jobs. Rather, she said, it encouraged chaebol owner-families to pursue private interests through unfair practices. She was referring to the widely reported practices of chaebol children making easy money by setting up their own companies and then getting sweet deals from group affiliates. Park stopped short of calling for a revival of the repealed regulation as doing so could hinder corporations from investing in key sectors. Instead, she called for toughening of the fair trade act to prevent chaebol siblings from abusing related-party transactions. On top of this, the GNP’s emergency council is set to roll out a set of reform measures as part of its efforts to shake off the party’s pro-big business image. The ruling party’s reform gesture has pushed its main rival, the Democratic United Party (DUP), toward a more aggressive agenda. The party’s new leadership has already vowed to revive the abrogated regulation on corporate equity investment. The rule, if reintroduced as envisioned by the DUP, would ban affiliates of the top 10 chaebol groups from investing in other companies in excess of 40 percent of their net worth. The party claimed that the abolition of the equity investment ceiling paved the way for chaebol groups to muscle into business fields deemed appropriate for SMEs.