Korea’s antitrust regulator will allow manufacturing-focused conglomerates to own financial subsidiaries such as insurance companies, but only if they reorganize their governance structures to transform into holding companies.
In a policy and legislative briefing to the National Assembly’s National Policy Committee on Monday, the Fair Trade Commission said that chaebol, or family-run conglomerates, with a main interest in manufacturing would also have to establish separate intermediate holding companies under the groups’ main holding companies.
Big businesses that seek to retain or acquire financial companies would need to untangle and unwind their complex webs of cross-shareholdings among their subsidiaries and affiliates, and reorganize nonfinancial subsidiaries to be under the wing of their main holding companies.
Financial subsidiaries must be restructured to be under their intermediate holding companies.
There can be no equity ties or connections between financial and manufacturing subsidiaries, the FTC said.
This is part of the commission’s so-called economic democratization policy aimed at boosting transparency of chaebol by further separating financial and industrial capital.
Previously, conglomerates were required to sell off their financial subsidiaries in order to transform into holding companies.
The country’s regulators encouraged this governance structure not only for efficiency and transparency, but also to prevent conglomerates from misusing their financial subsidiaries’ capital, mostly gained from their customers’ money, for chaebol owners’ personal benefit.
However, many conglomerates were reluctant to reorganize their equity structures as they did not want to let go of their lucrative financial business.
There were 32 industrial groups holding 164 financial subsidiaries such as life and nonlife insurers as of April 2013, according to the FTC.
The economic democratization legislation currently under review is expected to affect conglomerates such as Samsung, the country’s largest chaebol, industry experts said.
Until conglomerates can clean up their cross-shareholdings between manufacturing and financial subsidiaries, the FTC will restrict management voting rights of financial subsidiaries of up to 5 percent over their nonfinancial affiliates.
For instance, Samsung Life Insurance, which holds a 7.53 percent in Samsung Electronics, will be allowed to exercise only a 5 percent voting right over its tech affiliate, the FTC noted.
The FTC will increase its internal ethical codes preventing its civil servants from making prior contacts with companies they plan to work for later.
Such an act will be in violation of the proposed law.
The regulator will not allow its soon-to-retire public servants to handle cases involving companies they plan to work for, and those caught doing so will face tougher sanctions and penalties.
These measures come as a growing number of public servants find positions at private companies using the privileges of their former posts.
By Park Hyong-ki (
hkp@heraldcorp.com)
