Chaebol’s nonprofit foundations face FTC investigation
Antitrust regulator doubts conglomerates’ willingness to reform
Fair Trade Commission (FTC) Chairman Kim Sang-jo has once again sent a warning to the country’s top five chaebol — either they change on their own or the antitrust regulator will do it for them.
This is FTC chief’s second caution following his first meeting with executives from Samsung Electronics, Hyundai Motor, SK Telecom, LG Corp. and Lotte last June.
Kim said in their second meeting Thursday that the government will not just wait and be patient to see if they are pursuing self-reform on their own timetable.
From next month, the FTC will begin conducting a thorough inspection of all nonprofit foundations affiliated with the top conglomerates, which the regulator believes have been used as vehicles for illicit deals for solidifying control of group units.
The FTC will look into the foundations to see whether they are running legitimately as they are allegedly misused by chaebol owners to keep capital and further build up their wealth, rather than for charity work.
“I think we can start the inspection of nonprofit foundations in December. We will be able to wrap it up in the first half of next year,” Kim said.
It has set up a division primarily targeting big conglomerates. This will carry out the investigation, along with other probes, including whether conglomerates are filing their disclosures properly.
“The foundations receive tax benefits when they meet certain criteria,” Kim said. “But we will see if they were really established for charity.”
Furthermore, he urged chaebol to be more ethically responsible, and improve their governance in line with the Stewardship Code, a set of principles for institutional investors.
Among the participants in the meeting were Lee Sang-hoon, president of Samsung Electronics; Chung Jin-hang, president of Hyundai Motor; Park Jung-ho, president of SK Telecom; Ha Hyun-hwoi, president of LG Corp.; Hwang Kag-gyu, president of Lotte Corp.; and Lee Dong-geun, vice chairman of the Korea Chamber of Commerce and Industry (KCCI).
Kim said the government has sufficiently explained its policy and its commitment to social reform to chaebol, and the people are still unsatisfied with the way and how slowly conglomerates are moving to change on their own.
“The people still have doubts about chaebol’s commitment to self-reform,” Kim said.
He said even though the FTC will not “wield a sword” against them, it will not just continue to take a wait-and-see attitude toward reforming chaebol.
This means they should speed up efforts to eliminate unfair and illicit business practices, because the people are still questioning their commitment to change.
The FTC chief also said the regulator will look into the profit structure of the conglomerates to see whether there are illicit transactions among them.
Kim also called for business leaders to share the profits with their subcontractors in a fairer and more transparent way.
He added that the top conglomerates have the ability to carry thorough reforms on their own.
“They have stronger capability and willingness to change than any other organizations in our society. They can change if they keep up with consistency,” Kim said.
Kim noted the conglomerates have made moves over the past months to reform themselves.
“It’s a good start. Still, they have a long way to go.”
KCCI Vice Chairman Lee agreed in the meeting that conglomerates have been moving “unsatisfactorily in the eyes of the public.”
Still, the top conglomerates asked for more time.