Chaebol Leaders Exercise Power without Responsibility

Posted on : 2012-09-28 11:47 KST Modified on : 2019-10-19 20:29 KST
Chairpersons apparently directing chaebol business without formal role on board of directors

By Kwak Jung-soo, business correspondent

Chairpersons of eight chaebol including Lee Kun-hee of Samsung and Lee Myung-hee of Shinsegae are not listed on the board of directors even though they control dozens of affiliates, suggesting that they only exercise power, without shouldering the responsibilities that should accompany it.

In addition, even though half of the directors of chaebol’s listed affiliates are outside directors, only six out of 1,000 agendas presented by the board of directors were not passed unchanged, suggesting that the internal system to check management decisions by the families of chairpersons is ineffectual. On Sept. 26 the Korea Fair Trade Commission released a report on the investigation of governance in 38 chaebol (with 1,413 affiliates) that have obligations for disclosure and a chairperson in power.

Imbalance of power and responsibility

As of late April, out of 5,844 directors registered on the board of directors, 535 come from chairpersons’ families. This accounts for 9 percent, up 0.7 percent from a year earlier. The proportion of the registration of chairperson and family members on the board of directors stood at 2.7 percent (157) and 6.5 percent (378), respectively. While chairperson registration dropped 0.2 percent from the last year, family members’ registrations increased 0.9 percent.

The percentage of affiliates where a chairperson is listed on the board of directors 11.1 percent (157). The percentage of four major groups including Samsung, Hyundai Motor, SK Group, and LG comes in lower, at 3.8 percent. Chairpersons of eight groups including Samsung, Hyundai Heavy Industries, Doosan, LG, Shinsegae, Daelim, Mirae Asset, and TK Corporation are not listed on any of their affiliate’s boards of directors.

In the case of Samsung, only Lee Bu-jin, Shilla Hotel CEO and daughter of Lee Kun-hee, is listed on the board of directors of the Hotel Shilla. Meanwhile, Shin Kyuk-ho, head of the Lotte Group, was listed in 12 affiliates. Cho Yang-ho of Hanjin (8), Kim Seung-youn of Hanwha (7) and Chung Mong-koo of Hyundai Motor (6) are listed on relatively large number of their affiliates’ boards of directors. The percentage of affiliates that had more than one family member of the CEO installed on the board of directors was 27.2 percent (384).

South Korean chaebol chairpersons are criticized for exercising absolute power while avoiding being listed on the board of directors, a practice that harms the balance of power and responsibilities. Shin Young-sun, director of economic policy bureau said, “It is hard to hold chairpersons legally accountable because they usually aren’t registered on the board of directors,” adding, “The law stipulates that a person should be held liable if they exercise management authority when not listed on the board of directors, but it is hard to prove whether a chairperson delivers actually directs company management.”

Rubber-Stamp Internal Check System

The percentage of outside directors of 238 listed affiliates in 46 chaebol stood at 48.5 percent (772), one percent higher than a year earlier. The percentage of chaebol without a chairperson was 50.4 percent, 2.1 percent higher than 48.3 of chaebol that do have a chairperson.

The participation rates of the board meeting by outside directors accounted for 90.6 percent, up 2.8 percent from the last year. But the number of agenda items that failed to pass due to opposition from outside directors was only 0.63 percent.

The percentage of having committee to recommend outside directors and inspection committee in place was 50.4 percent and 66.4 percent, respectively. The percentages of having (executive) compensation committee and internal transaction committee was relatively low, at 15.1 percent and 13.4 percent, respectively. Over the past year, out of 1073 items presented by the four committees, only six (0.56 percent) failed to pass as originally presented. This shows that the internal check system to monitor arbitrary management by families of chairpersons is little more than a rubber-stamp.

Systems designed to strengthen the power of the minority shareholders such as the concentrated vote system and written vote system were introduced by only 5 to 10 percent of major listed corporations. None of these firms has an electronic vote system in place. Over the last year, instances in which minority shareholders exercised their powers, which can include calling for contingent shareholder general meetings and ousting directors, occurred at KT (once) and Hyundai Elevator (twice).

Chae Yi-bae, researcher from Solidarity for Economic Reform said, “Chairpersons avoid taking responsibility while exercising power, and internal check systems, such as hiring outside directors introduced to deter authority abuse and to ensure transparent management are not functioning properly,” adding that the measures should be taken to strengthen the independence of outside directors.

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