SEOUL, Aug. 6 (Korea Bizwire) — The heads of South Korea’s major business groups own puny stakes in their affiliates, but a complex cross-shareholding structure allows their families to exercise nearly uncontrolled power over the sprawling business empires, data showed Thursday.
In South Korea’s business scene, a “group” does not refers to a legal entity, but instead a network of numerous subsidiaries connected through a web of cross-shareholdings which allow the founding families to sit at the top managerial positions with only a handful of stakes.
The family-run conglomerates are called chaebol in South Korea, and their chairmen are often referred to as “owners” of the business groups.
The corporate governance issue has come to the fore again after Lotte Group, the nation’s fifth-largest conglomerate with a focus in retail, has been mired in a succession feud between the corporate founder’s two sons, prompting calls to reform the anachronistic system rooted in the past.
According to data compiled by Chabul.com, a Seoul-based corporate tracker, the chiefs of the nation’s top 10 business groups held an average stake of 0.25 percent in their affiliates. Together with the shares of their family members, their ownership rises to 0.49 percent of the total.
The stock ownership of Park Yong-gon, chairman of Doosan Group, ranked at the bottom with virtually no stake, followed by Shin Kyuk-ho, chief of Lotte Group, with 0.05 percent. The combined stakes of Lotte affiliates held by the Shin family, including the founder’s daughter and two sons, amount to 1.94 percent.
Samsung Group Chairman Lee Kun-hee, who has been hospitalized since suffering a heart attack in May 2014, had the highest stock ownership ratio, with 2.24 percent of the total. The group has more than 80 affiliates, with 24 of them listed on the Seoul bourse. Together with stakes held by heir-apparent Lee Jae-yong and his two sisters, the Lee family had 5.16 percent of total, Chaebul.com said.
In response to growing criticism of shady governance by the chaebol, the government and policymakers are looking at ways to reform the ownership structure that prefers bloodlines and employee loyalty over qualification-based management system.
The country’s existing fair trade law bars new cross-shareholding arrangements, but not existing ones.