Conglomerates Pushing Reform After Graft Scandal | Be Korea-savvy

Conglomerates Pushing Reform After Graft Scandal

Samsung Headquarters in Gangnam, Seoul. (image: Wikimedia)

Samsung Headquarters in Gangnam, Seoul. (image: Wikimedia)

SEOUL, Feb. 22 (Korea Bizwire) – South Korea’s major conglomerates are ramping up efforts to run their sprawling business empires in a more transparent and law-abiding way following a high-profile corruption scandal that led to the impeachment of President Park Geun-hye, sources said Wednesday. 

Dozens of large companies, including top conglomerate Samsung Group, have been found to have donated tens of millions of dollars to two shady foundations controlled by Choi Soon-sil, a detained long-time ally of President Park. 

In a move that sent shockwaves through the local business world, Lee Jae-yong, Samsung’s de facto leader and heir apparent, was arrested early Friday on charges of paying bribes worth about US$40 million to Choi and the foundations in exchange for business favors. 

The scandal and its blowback have sparked soul-searching among family-controlled business groups, known as chaebol here, which have long been under fire for maintaining cozy ties with politicians and bureaucrats to promote their business interests. 

Leading the pack is retail-focused Lotte Group, the fifth-largest conglomerate in South Korea. 

In an organizational and personnel shakeup Tuesday, Lotte separated its policy headquarters into two bodies — the management renovation office and the compliance committee.

Lotte Group Chairman Shin Dong-bin. (image: Yonhap)

Lotte Group Chairman Shin Dong-bin. (image: Yonhap)

The compliance commission is staffed with as many as 40 officials, which is seen as indicating Lotte’s determination to manage the conglomerate more transparently and in accordance with the law. 

Watchers said the reshuffle is the result of Lotte’s self-reflection after the group underwent a grueling prosecution investigation over the alleged creation of a secret fund last year. Between late last year and early 2017, Lotte also came under criticism for allegations it donated money to the two foundations in return for business favors. 

In a public apology over the prosecution investigation in October, Lotte Group Chairman Shin Dong-bin pledged to transform the group into a “good company” that does its best to fulfill corporate social responsibility. 

In a New Year statement, Shin said the group will redouble efforts to establish a compliance body since only companies with high levels of morality and ethics can last long. 

Samsung has also been striving to overhaul itself, though its reform drive has been delayed by the detention of Lee, who has run the leading conglomerate since his father and Samsung Electronics Chairman Lee Kun-hee was hospitalized for a heart attack in 2014. 

Samsung’s reform plan focuses on dismantling the group’s control tower Future Strategy Office, which was found to have spearheaded its illegal financial aid to Choi and her daughter Chung Yoo-ra. 

Staffed with about 200 executives and senior employees sent by affiliates, the office has seven teams that make important decisions and orchestrate key policies. 

During an appearance at a parliamentary hearing in early December, the arrested Lee vowed to break up the office if the public holds a negative view toward it.

Lee Jae-yong, Samsung Group's de facto leader. (Yonhap)

Lee Jae-yong, Samsung Group’s de facto leader. (image: Yonhap)

Analysts also said market attention is zeroing in on CJ Group’s personnel and organizational reshuffle that is slated for late this month and will serve as a barometer of its determination to overhaul the nation’s leading food and entertainment conglomerate. 

CJ has been working on a reform plan since its ailing Chairman Lee Jae-hyun was released on special presidential pardon in August last year. He was indicted in 2013 on charges of embezzlement and tax evasion and was given two and a half years in jail last year. 

Hyundai Motor Group, which has top automaker Hyundai Motor Co. and No. 2 player Kia Motors Corp. under its wing, has also vowed to boost managerial transparency. “Hyundai Motor Group should carry out its corporate social responsibility faithfully by ramping up efforts for transparent management and social contributions,” Chairman Chung Mong-koo said in a New-Year statement. 

Market watchers said other large companies, which are not involved in the corruption scandal, are putting “compliance” on the front burner as the scandal has driven home a lesson that murky decision-making and law violations could shake companies to their foundations. 


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