The world’s biggest smartphone maker Samsung and other conglomerates that dominate South Korea’s economy are firmly in the reformist sights of new president Moon Jae-In — and analysts say he could succeed where many have failed.
The likes of Samsung and Hyundai, sprawling family-led empires known as “chaebols”, were crucial to the South’s rapid economic transformation in the 1960s and 70s from the ruins of war.
Now they employ vast numbers of people in Asia’s fourth-largest economy.
The revenues of Samsung alone, which has activities as diverse as a fashion line and an amusement park as well as making semiconductors and televisions, are equivalent to a quarter of the country’s GDP.
They have gained immense political leverage, but also turned into objects of public scorn, accused of choking off innovation and engaging in corrupt business practices to ensure the families retain control of their empires.
Cosy ties with the political elite were exposed by the scandal that brought down Moon’s predecessor Park Geun-Hye, and on the campaign trail he vowed to squeeze the four biggest conglomerates — Samsung, Hyundai, SK and LG — labelling them “obstacles to economic growth”.
“I will take the initiative in reforming conglomerates,” he said in his inauguration speech.
Reform has been pledged many times before — even by Park, and by Moon’s own party — without being carried out, but the new president has blamed “weak motivation” in previous governments.
Analysts say there is more momentum for change now, after millions of people took to the streets to demand Park’s removal, many of them also targeting the chaebols.
The level of public anger means the “chances of meaningful reform are much increased”, said Capital Economics analyst Gareth Leather.
Several chaebols took out full-page newspaper advertisements on Thursday to congratulate Moon — Samsung’s featured a smiling girl and proclaimed that “hope for a better tomorrow has begun”.
The word “chaebol” originates from a combination of the characters for “wealth” and “clan”.
Many chaebol families retain only a small ownership stake in their companies, but maintain control through complex webs of cross-shareholdings between subsidiaries, and rapid promotions for family members.
Among the casualties in the Park scandal was Samsung heir Lee Jae-Yong, who has gone on trial for allegedly bribing Park’s secret confidante in exchange for government favours — including state approval for a controversial merger of two Samsung units seen as a key step to ensure a smooth transfer of power to him.
Moon has promised to promote more transparent corporate governance, aimed at breaking up the line of succession within chaebol families.
Under a proposal to bring in cumulative voting for board elections, shareholders would be able to concentrate their votes on particular candidates, increasing the chances of outsiders winning seats.
The change would be a “crucial catalyst for strengthening the independence and responsibility of the board”, said C.W. Chung, an analyst at Nomura Securities.
With liberals in control of parliament as well as the presidency, the likelihood of reform was “much higher than it has been at any time in the past”, he added.
A new watchdog committee with members from prosecutors, police, tax authorities and the Fair Trade Commission to address unfair practices by conglomerates against smaller businesses has also been promised.
Moon has vowed to restrict the number of presidential pardons granted to business leaders.
“The chaebol families are the body of numerous white-collar crimes like accounting fraud, slush fund creating and tax evasion,” he said on the campaign trail.
Chaebol leaders have regularly received mild punishments such as suspended sentences after being convicted of financial crimes, with courts often citing the potential impact to South Korea’s economy of harsher sanctions.
Samsung chairman Lee Kun-Hee has been pardoned twice after being convicted of tax evasion and embezzlement.
But some are more sceptical about Moon’s quest to slay the chaebols, noting that his own Democratic party is among those which have tried and failed to do so in the past.
Anything that damages the firms risks affecting their employees and the wider economy, and Robert Kelly of Pusan National University says the chaebols are “deeply rooted in the system” and remain an object of admiration for many.
There is still “prestige attached to working for Korea’s large corporations” like Samsung and LG that carry the country’s name and reputation out into the world, he said, which in turn “insulates them against government action”.
“Names like POSCO, Samsung and LG are not just corporations in South Korea,” Kelly said. “They are in many ways seen as national champions.”