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Changing tides for the South Korean chaebol?

Posted on May 10, 2018

Anders Planck-Hendriksen
Anders Planck-Hendriksen
Senior Associate, Engagement

This blog originally appeared on GES International’s website and has been republished following Sustainaltyics’ acquisition of the company on 9 January 2019. See the press release for more information.

In December 2017, GES travelled to Seoul, South Korea, to engage with some of the country’s largest companies as part of the GES Business Conduct Engagement and the Emerging Markets Engagement programme. A key issue when engaging with South Korean companies relates to the large, family-controlled conglomerates, known as chaebols. These conglomerates were central to the country’s post-war transformation into an Asian “miracle economy”. The massive economic power of these conglomerates, combined with little transparency and often complex ownership structures, have seen the chaebols become the centre of the debate about corporate governance in South Korea. In the past decades, several high-ranking company officials have been investigated, and sometimes convicted, on charges relating to tax evasion, embezzlement and bribery.

The chaebols were also central to the corruption scandal which erupted in December 2016 and led to the fall of the President Park Geun-hye, who was recently sentenced to 24 years in prison for bribery and abuse of power, among other charges. The scandal involved corporate donations paid by as many as 53 companies to two of Park’s confidante Choi Soon-sil’s foundations. The National Assembly described the donations as bribes personally benefiting Ms Choi and paid in return for favours ranging from lucrative licenses to presidential pardons and corporate mergers. During Park’s tenure as President, she also granted pardons to several company Chairmen convicted on various corruption charges.

Coinciding with the latest corruption scandal in December 2016, the Korea Corporate Governance Service published the Korean Stewardship Code intended to promote active ownership and greater transparency among institutional investors, inspired by the 2010 UK Stewardship Code. Although the Code initially received a lukewarm welcome from asset owners and asset managers, much-needed traction was gained when South Korea’s largest institutional investor, the National Pension Service (NPS), announced intentions to implement the Code in 2018. This is expected to be a game changer for corporate governance in South Korea.

In response to recent years’ increased scrutiny, several of the dominating conglomerates have announced measures to increase transparency and accountability. In 2017, Samsung Electronics announced measures to increase accountability in managing financial donations and monetary support for CSR-related activities and funds, as well as plans to increase dividends in the coming years. More recently, at Samsung’s shareholder AGM in March 2018, the company further announced the establishment of a Governance Committee comprised entirely of independent directors, as well as intentions to separate the CEO and Charman roles for the first time in the company’s history.

Meanwhile, several entities of one of the largest chaebols have announced intentions to stop holding their annual general shareholder meetings on the same day starting this year – a common practice in Korea which is highly disadvantageous for minority shareholders. Last year, more than 40 per cent of listed South Korean companies held their general shareholders’ meetings on 24 March, and still only a fraction allows electronic voting.

GES visits Seoul annually to engage local companies both reactively (incident-driven) and proactive (risk-driven), and we continue to encourage developments to promote transparency and accountability, especially within the dominating chaebols. Through ongoing dialogue, we are able to constructively voice feedback on the company efforts we encounter, in turn creating the right foundation to help companies better understand and align with investors’ expectations and concerns.


Bloomberg: Moon’s chaebol coma (10 January 2018);  South Korean scandal may force change of chaebol ways (5 January 2018)

Nikkei Asian Review: Samsung heir’s release will not kill South Korea’s reform drive (9 February 2017); South Korea’s chaebol show shareholders some respect (2 February 2018)

Pulse News: Korea’s National Pension Service to introduce stewardship code in 2018 (12 March 2017)

Reuters: Changes in chaebol governance culture could diminish the Korea discount (30 October 2017)

The Economist: South Korea’s antitrust tsar has a good shot at taming the chaebol (6 January 2018)

The Korea Times: President vows to reform chaebol (10 January 2018)

The New York Times: Money, power, family: Inside South Korea’s chaebol (17 February 2017)

Samsung: Samsung Electronics holds Annual General Meeting of Shareholders (23 March 2018)

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