Seoul’s business district (Image courtesy of Pixabay)
SEOUL, Dec. 6 (Korea Bizwire) – South Korea is witnessing a steady shift toward transparent corporate governance as more conglomerates adopt holding company structures. However, concerns are mounting over indirect investments via overseas subsidiaries, potentially enabling unfair internal transactions and abuse of authority.
According to the Fair-Trade Commission (FTC), 43 of the country’s 88 conglomerates had transitioned to a holding company structure by September 2024, nearly doubling since 2018. This governance model, lauded for its simplicity and transparency, enables easier oversight and mitigates risks across subsidiaries.
Increased Dividend Revenue, But Emerging Loopholes
The FTC’s analysis showed a growing reliance on dividend income among holding companies, which now constitutes over 50% of their revenue for the first time since 2018. While this indicates reduced reliance on less-transparent income sources like trademark fees and consultancy charges, the emergence of complex indirect investment routes remains a concern.
The study identified 32 instances of holding companies indirectly investing in domestic affiliates via overseas subsidiaries—a rise from 25 cases last year. Notable groups involved include SK, LG, and Lotte. While not illegal, such arrangements could bypass regulations and facilitate unfair practices, prompting calls for stricter monitoring.
Internal Transactions and “Brand Royalties” Scrutinized
Domestic internal transactions accounted for 12.6% of the total dealings among holding companies, comparable to conglomerates without holding structures. Additionally, royalties for brand usage, or “brand fees,” reached ₩992.5 billion, with major contributors including LG, SK, and CJ. Despite a modest reduction in their share of revenues, these fees remain a focal point of regulatory oversight.
Calls for Tighter Regulation
The FTC emphasized the need for ongoing vigilance to prevent exploitation of holding company structures for illicit purposes. It vowed to penalize violations such as unfair internal transactions and abuse of dominant positions.
While corporate governance reforms are advancing, the report highlights the balance South Korea must strike between encouraging transparency and curbing emerging vulnerabilities in its evolving economic landscape.
Ashley Song (ashley@koreabizwire.com)
