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Control not ownership comes to fore at chaebols

The families behind South Korea’s largest conglomerates, from Samsung to Hyundai Motor, now own less, but have greater control of their businesses.

The families behind South Korea’s largest conglomerates, from Samsung to Hyundai Motor, now own less, but have greater control of their businesses.

That’s the main finding of a new report by the country’s Fair Trade Commission, which said the leaders and relatives at 43 chaebols – family-controlled conglomerates – held a direct stake of just over 4% on average.

However, families are making greater use of “circular shareholding” structures – where they control the business through stakes in affiliated companies – to increase their control of conglomerates, the report said. There was a 2.19% increase in stakes held in affiliated companies to 49.55% this year.

A number of Korean organisations, including the Economic Reform Research Institute, have called for changes to the current system, which they claim could lead to abuses of power.

“If we are going to prevent owners from controlling an entire conglomerate with just a piddling share of it, we need to amend the Fair Trading Act to ban circular equity investment, and we need to strengthen the role of pensions and other organisational investors to prevent management abuses by the owners,” said ERRI analyst Wi Pyung-ryan, according to local newspaper Hankyoreh.

The news came at the same time as Chaebul.com, which monitors the country’s conglomerates, said the value of assets controlled by the country’s top 100 business groups now almost equals the government’s assets.

Just five companies – Samsung, Hyundai-Kia, SK, LG and Lotte – controlled 52% of the 1.446 quadrillion won (€692 billion) in assets held by the conglomerates.

“The assets controlled by businesses were significantly smaller than the assets controlled by the government as recently as the early 1990s. However, conglomerates have expanded their assets at a far faster rate since,” Jeong Seon-seob, president of Chaebul.com, told the Korea Times

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