Korean chaebols: Outdated model requires reform
SUMMARY
The Korean chaebol - giant conglomerates still run by founding families - has transformed the Korean economy but they are now the source of problems which need to be corrected. Chaebols need to be updated for the modern world, not only for their future prospects but for the Korean economy as a whole. Reform of the system is required and the relationship with government must become more distant if smaller companies are to be given a better chance and corporate governance be improved.
KEY FINDINGS
The Korean chaebol - giant conglomerates still run by founding families - has transformed the Korean economy but they are now the source of problems which need to be corrected. Chaebols need to be updated for the modern world, not only for their future prospects but for the Korean economy as a whole. Reform of the system is required and the relationship with government must become more distant if smaller companies are to be given a better chance and corporate governance be improved.
KEY FINDINGS
- Examines the impact chaebols have on small and medium business
- Asserts that the present system does not provide shareholder value
- Calls for the current scandal surrounding Samsung to be used as a means to improve transparency
- What is the impact of chaebols on the wider economy?
- Why are chaebols discounted on the global market?
- How can chaebol corporate governance be improved?
- The culture surrounding chaebols is deleterious to the wider economy. Consuming every industry they enter, chaebols, whilst heavily responsible for an economic miracle, are preventing small and medium companies from growing. A low degree of transparency cements the chaebol dominance and entrenches a culture adverse to business creation and growth.
- Chaebols are in need of reform in order to provide shareholders with the degree of value and influence in the running of companies they are accustomed to across many areas of the world.
- The present scandal surrounding Samsung and the now departed president must be used as impetus to create transparency in ownership and business practices.
Overview
Catalyst
Summary
Dominance threatens small and medium companies
Small and medium sized businesses often marginalized by giant family run conglomerates
Structural problems within the Korean economy caused by Chaebol business culture
Bakeries showed how the government can be a force for good
Chaebols have too much political influence - this must change
Chaebols have been allowed to create their own rules to the detriment of the wider economy
Bad for business: Chaebols and the political elite engage in shady activities
Reform is happening, but progress is slow and more needs to be done
Chaebols do not provide value to shareholders
Eradicating the 'Korean Discount' would improve the deal for shareholders
Hyundai was profligate in $10bn land purchase - shareholders deserve better
Family ownership of the giant chaebols does shareholders no favors
Chaebol criminality hints at failing leadership
If found guilty, Samsung's Lee Jae-yong must be made an example of
Charges of insider trading at Hanjin shipping suggest chaebol leadership is of a poor standard
Conclusions
Chaebols are an outdated model - for the good of Korea they must change
Appendix
Sources
Further Reading
Ask the analyst
About MarketLine
Disclaimer
Catalyst
Summary
Dominance threatens small and medium companies
Small and medium sized businesses often marginalized by giant family run conglomerates
Structural problems within the Korean economy caused by Chaebol business culture
Bakeries showed how the government can be a force for good
Chaebols have too much political influence - this must change
Chaebols have been allowed to create their own rules to the detriment of the wider economy
Bad for business: Chaebols and the political elite engage in shady activities
Reform is happening, but progress is slow and more needs to be done
Chaebols do not provide value to shareholders
Eradicating the 'Korean Discount' would improve the deal for shareholders
Hyundai was profligate in $10bn land purchase - shareholders deserve better
Family ownership of the giant chaebols does shareholders no favors
Chaebol criminality hints at failing leadership
If found guilty, Samsung's Lee Jae-yong must be made an example of
Charges of insider trading at Hanjin shipping suggest chaebol leadership is of a poor standard
Conclusions
Chaebols are an outdated model - for the good of Korea they must change
Appendix
Sources
Further Reading
Ask the analyst
About MarketLine
Disclaimer
LIST OF FIGURES
Figure 1: Chaebol internal transactions (KRWtn)
Figure 2: Number of chaebol affiliates, 2012
Figure 3: Vezzly Bakery
Figure 4: Percentage of voting rights held by founding families of chaebols, 2015
Figure 5: Percentage of stock held in chaebols by founding families, 2015
Figure 6: Percentage of high-risk businesses, 2015
Figure 7: Price to earnings multiples (2017 and 2018 estimated)
Figure 8: Percentage Korean chaebol affiliate earnings growth relative to stock market, 2015
Figure 9: Shin Kyuk-ho, Lotte Group founder
Figure 10: Structure of company directors
Figure 11: Lee Jae-yong
Figure 12: Choi Eun-young
Figure 1: Chaebol internal transactions (KRWtn)
Figure 2: Number of chaebol affiliates, 2012
Figure 3: Vezzly Bakery
Figure 4: Percentage of voting rights held by founding families of chaebols, 2015
Figure 5: Percentage of stock held in chaebols by founding families, 2015
Figure 6: Percentage of high-risk businesses, 2015
Figure 7: Price to earnings multiples (2017 and 2018 estimated)
Figure 8: Percentage Korean chaebol affiliate earnings growth relative to stock market, 2015
Figure 9: Shin Kyuk-ho, Lotte Group founder
Figure 10: Structure of company directors
Figure 11: Lee Jae-yong
Figure 12: Choi Eun-young
