Samsung Experience at the Time Warner Center, New York City
It has been a full two months since “nut-gate,” the macadamia-induced diatribe of then Korean Airlines (KAL) vice-president, Cho Hyun-ah — yet news on the incident still unfolds.
For violations of aviation-safety law and assault, Cho was taken into custody on December 30, following a probe launched by the South Korean Ministry of Land, Infrastructure, and Transportation. Since her arrest, further allegations have surfaced against KAL executives who may have tampered with evidence and attempted to coerce employees into giving false testimony.
Cho now faces a maximum of fifteen years in prison with additional punitive actions against the Hanjin Group, a holding company that includes subsidiaries Korean Air and Hanjin Shipping, headed by members of Cho’s family.
However cruel and unusual her actions may have been, “nut-gate” actually falls on the benign side of corporate misbehavior in South Korea. Embezzlement of public funds and accounting fraud in the order of millions constitute the bulk of prosecutions against executives, many of whom are repeat offenders.
Until recently, the South Korean government has been quick to pardon criminal executives in the name of “national interest.” Family-owned-and-operated corporate conglomerates, such as Cho’s Hanjin, wield great power over South Korea’s economic and political scene. They are known simply as Chaebol, and they account for over 80% of the nation’s GDP.
“Heavy-Chemical” on the Han
During testimony against Cho, Park Chang-jin, chief steward aboard the flight, claimed that flight attendants were treated like “feudal slaves” by executives. Park himself was forced to kneel and beg for forgiveness before Cho aboard flight KE086. Considering South Korea’s corporate landscape, Mr. Park’s comparison is strangely apt. The nature of Chaebol corporatocracy is reminiscent of pre-dynastic times on the peninsula — littered with micro-monarchies and ruled by the land-owning elite.
Much like the popularized 1970’s espousal of “Korean-style democracy” in the form of authoritarian rule, the Chaebol system is a Korean-styled capitalism that burgeoned at a time of aggressive export-led industrialization. The contemporary strengths of Chaebol are a legacy of Park Chung-hee’s 1961-1979 rule, and an oft-cited reason for the South Korean boom in economy ever since.
In the 1970’s, with the heavy withdrawal of US troops under the Nixon administration, Park initiated an economic plan known as the “Heavy-Chemical Industry Drive” (HCI) with the hopes of establishing an infrastructure capable of maintaining a self-sufficient military force. South Korea channeled its economic capacities into heavy industry: primarily steel, petrochemicals, automobiles, shipbuilding, and electronics.
Chaebol conglomerates acted as the hands of the government, and many who worked with Park reap the benefits to this day. You may know of LG for their home appliances, or Hyundai for their consumer cars, but both conglomerates generate enormous revenues from a diverse range of industries rooted in “HCI.” LG Chem, for example, is among the world’s largest chemical manufacturers, with $23b in revenues. Hyundai Steel’s total assets amount to over $29b. Even Cho’s Hanjin Shipping subsidiary rakes in sales exceeding $8b — only $3b less than their poster child, Korean Airlines.
One Chaebol, however, stands in a league of its own.
Samsung’s First Family
The Washington Post mockingly referred to South Korea as the “Republic of Samsung,” an Infinite Jest-like world where citizens could live the Samsung lifestyle, replete with Samsung credit cards to buy Samsung TVs for Samsung-made apartments, all covered under Samsung home and life insurance.
To put things into perspective, nearly one quarter of South Korea’s $1.2 trillion economy is driven by a single corporate entity. The Samsung Group’s total assets well exceed $300b, with subsidiaries such as Samsung Electronics raking in $200b alone. The industrial side of Samsung is no less impressive: Samsung Heavy Industries is the second largest ship builder in the world.
As a further measure of the conglomerate’s power: In Forbe’s latest ranking of the World’s Most Powerful People, Chairman of Samsung, Lee Kun-hee, and his son Lee Jae-yong, were ranked higher than all of UN Secretary General, Ban Ki-Moon; President of South Korea, Park Geun-Hye; and North Korean Dictator, Kim Jong-un.
Yet for the Lee family — as with Cho Hyun-ah and the Hanjin Group — an ever-present specter of scandal and media attention looms overhead. In 2008, Chairman Lee Kun-hee was embroiled in criminal scandal: tax evasion amounting to $39m along with conspiracies to sell company bonds within his family at below-market rates. He was sentenced to three years in prison, but was pardoned in less than a few months.
In the wake of “nut-gate” and the multitude of criminal offenses committed by Chaebol leadership, both shareholders and the general public are beginning to question the latest generation of young and untested executives rising to power. One study on Chaebol leadership found that most children of reigning executives began work with their conglomerate by age 30, rising to executive status within only three years. Lee Jae-yong, for instance, began work with Samsung at age 23, swiftly rising to the rank of Chief Customer Officer.
Proponents of family succession argue that the system adds a positive personal touch to business — executives striving to pass on powerful corporate legacies to their children and grandchildren. Family-owned businesses are thought to be more fiscally responsible, and oriented towards the long term in their decision-making.
While there is certainly a wealth of economic pros and cons to the Chaebol system, the corruption and criminal culture bred by such concentrated levels of power cannot be overlooked. The current South Korean administration has rightfully taken an official stance against leniency for criminal executives. President Park openly went on record to state that no executives would find pardons in the coming year, despite suggestions from key Cabinet members that doing so would benefit the nation’s economy.
Although the legislative climate remains as favorable to Chaebol as ever, this declaration is a step in the right direction after years of unwarranted forgiveness. The due administration of justice should not bend to any individual, regardless of wealth or power. Oddly enough, Heiress Cho and her macadamias have only aided in that process.