South Koreans are probably experiencing a bout of deja vu as family rivalries wreak havoc at yet another chaebol, the family-owned business groups that dominate their economy.
In the early 2000s, it was the Chungs of Hyundai feuding over their industrial empire. That scrap was settled only after Chung Ju Yung died in 2001 and the group he founded splintered into three parts, slamming the stock market and showing the world how far Korea needed to go to join the ranks of developed economies. Fourteen years on, Korea's economy is still dominated by chaebols. This time, it's the Shin brothers of Lotte, Korea's eighth largest business conglomerate, earning headlines as they brawl to succeed their 92-year-old father Shin Kyuk Ho.
Since the 1997 Asian crisis, every Korean President has pledged to retool the economy to prevent the kind of sibling battle now tearing up Lotte. Park Geun Hye, for example, was elected in December 2012 on promises to curb chaebol influence and diversify the economy. Park told voters she would unleash the "economic democratisation" of Korea, by empowering smaller companies, ending deals where corporate patriarchs steer business to relatives, taxing the $2 trillion of cash hoarded by Korean executives and curbing crossholdings to weaken the grip of controlling families.
Lotte's fiasco offers a perfect opportunity to push this agenda. Unfortunately, Park's vision for the second-half of her presidency leaves little room for optimism. Her August 6 call for companies to generate more jobs for young people suggests her government on working together with the chaebol, not breaking them up.
Rather than sidelining the tycoons championed after the Korean War by her father, dictator Park Chung Hee, she's sought their help. In August 2013, Park sat down with the chaebol leaders she was supposed to be combatting, including Samsung's Lee Kun Hee, whose own kids have been consolidating their hold over Korea's biggest company since their father's May 2014 heart attack. Park seemed to be offering the chaebol a quid pro quo: help hasten gross domestic product and they won't have to worry about too much government interference.
Economic change in tradition-bound Korea will need to come from the top down - from Park's office and the chaebol executive suite. But Seoul has made little progress prodding chaebol to embrace global business practices. Korean corporate managers are still rarely recruited from among the best and brightest; instead, they continue to be groomed from childhood, like the scions of a political dynasty. The results are catastrophic. In a more diversified economy, family feuds among business heirs would be little more than tabloid fodder, material for gossip sites like Gawker.com. In Korea, they threaten to sink the country's most critical companies and hold the national economy hostage.
To be fair, Park does deserve credit for her new labour-reform initiative. She's right to push back against a national corporate culture that's obsessed with seniority over talent. After all, youth unemployment (between ages of 15 and 29) is 10.2 per cent, significantly higher than the 3.9 per cent national rate. But the plan still lacks specifics, a problem that bedevilled her strategy to build a "creative economy". Start-ups can't just be ordered up by politicians; nor can the labour market be transformed by decree.
Samsung's victory over activist investor Paul Elliott Singer to engineer a cosy merger between two of its companies shows how little changed since Hyundai scions squabbled, to the detriments of shareholders, in the early 2000s. And Park's indecisiveness, and her inclination to go easy on the spoiled sons and daughters at Samsung, Lotte and Hyundai, amounts to an endorsement of Korea's ailing status quo.
Consider Hyundai's most recent management pratfalls. Last year, as Park urged executives to adopt global practices, the son of the late Chung Ju Yung blew $10 billion on a new Hyundai Motor headquarters complex (paying three times the assessed value), irking foreign investors. And that was before Lotte's Shin brothers offered their own reminder that the Korean economy isn't ready for prime time.
Park, for her part, seems content to look on and let the chaebol have their way. "This is the time when we should make a decision for our daughters and sons, and for the future of the country," she said last week. Koreans would be forgiven for wondering exactly whose sons and daughters she had in mind.
©Bloomberg
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