Economic democratization is one of the three campaign keywords for Park Geun-hye, the presidential candidate of the ruling Saenuri Party. But the party still remains sharply divided over how to implement the elusive concept.
Thus far, the party’s task force on economic democratization has put forward four bills to curb chaebol’s abuse of their economic power.
The first proposal zeroes in on the court practice of granting suspended sentences to chaebol chairmen who have committed crimes, while the second is aimed at banning chaebol affiliates from setting up sweet deals with companies set up by chaebol family sibling.
The third bill seeks to prohibit big business groups from making any additional equity investment to expand their circular shareholding structure, while the fourth one bars tycoons from becoming major shareholders in nonbank financial companies if they have been convicted of embezzlement or breach of trust involving more than 500 million won.
These proposals, however, do not enjoy full backing from the party. The party’s conservative members expressed their opposition to them in a debate organized by the Yeouido Institute, the party’s think tank, on Tuesday.
Nevertheless, the task force said they would present their fifth proposal soon to push ahead with the separation of banking and commerce. This bill is more controversial than the previous ones as it can affect business groups’ present governance structure.
The task force said they would restrict business groups’ voting rights on their stakes in nonbanking financial subsidiaries, such as insurance companies, brokerages and credit card companies.
The task force wants to regulate chaebol groups’ control of nonbanking financial subsidiaries as they rightly view these affiliates as a vehicle that facilitates chaebol expansion and abuse of power.
It is well known that chaebol groups regard their nonbanking financial units as private coffers that they can tap into to support other group companies.
For instance, insurance companies affiliated with chaebol groups often purchase office buildings with customers’ money and rent them to sister companies on favorable terms. Nonbank financial subsidiaries also support other group firms by participating in their capital increases.
Yet the task force needs to be cautious, because nonbanking financial subsidiaries are key links in the governance structure of many business groups. If these groups are deprived of their voting rights on stakes in financial units, their entire governance system could collapse. The cure could be worse than the sickness.
As confusion continues over the ruling party’s economic democratization policies, it is time for Park to intervene and clarify her vision for how chaebol groups should manage their financial subsidiaries.
