In a race to tighten regulations on chaebol in the name of “economic democracy,” presidential candidates are moving to write proposed changes in corporate governance into law ahead of the Dec. 19 election. But hasty legislation may do more harm than good.
Park Geun-hye of the ruling Saenuri Party is moving to pass two key bills shortly after the National Assembly completes its inspection of government agencies next week.
Moon Jae-in of the main opposition Democratic United Party, which is working on 12 bills on economic democracy, says his party will submit all of them in the near future, adding that the legislature will have to act on them ahead of the presidential election. Ahn Cheol-soo, an independent, who has no party to back him in legislation, promises to create a presidential commission on chaebol reform if elected president.
Primarily at issue is the control of business conglomerates by a select few families, who wield more power in corporate governance than warranted by the equity shares they hold in their possession. Another key issue is a proposal to promote a stricter separation between industrial and financial capital.
A ban on the circular structure of cross holdings is being promoted as a main tool with which to loosen the control of business conglomerates by a few families. Some advocates propose to dismantle this shareholding structure while others favor a ban on new equity acquisitions for the purpose of such corporate governance.
According to one estimate, it would cost 10 trillion won if the 10 largest business groups in the nation were to dismantle their circular structures of cross holdings. The Federation of Korean Industries, the lobby for big businesses, asks why it is necessary to spend so much on a change in stock ownership at a time when the money can be put to use for job creation, research and development and other urgent purposes.
The FKI also opposes a proposal to lower the limit to the ownership of banks and non-bank financial corporations by non-financial corporations. It says the proposed measure would expose the domestic financial industry to a greater risk of being dominated by foreign investors.
Before pushing for anti-chaebol legislation, the ruling and opposition parties will have to address the questions raised by the FKI. Were it not for currying favor with the electorate, they have no compelling reason to pass anti-chaebol bills before the election.
