SEOUL - South Korea's family-run conglomerates are facing calls for a shakeup in their governance from a leading candidate in May's presidential election, following the ouster of former President Park Geun-hye in a burgeoning influence-peddling scandal.
The conglomerates known as chaebol have come under the reform buzz saw before, only to emerge bigger and stronger than ever.
The country's four biggest chaebol groups account for around half the stock market's value, according to the Korea Stock Exchange.
The question after the May 9 election is how deep will the reform drive go this time?
And would a new president tackle what critics say is at the heart of chaebol corporate governance conundrum - the spiderweb of cross-shareholdings among group companies held by their founding families?
"...I do think there has been a sea change in attitudes among the Korean population at large so there is an increased chance of chaebol reform succeeding," said Mark Mobius, the executive chairman of Templeton Emerging Markets Group.
"But we can't expect fast results simply because the importance of the chaebols in the economy is still so great," he added in an email interview.
PARDONING CORPORATE CHIEFS
The ouster of Park Geun-hye as president on March 10, following months of mass demonstrations, once again exposed the cosy ties between politicians and big business. Park herself had come into office promising to reform the conglomerates.
Prosecutors said on Monday they are seeking an arrest warrant for Park, who faces charges of taking bribes from chaebol bosses, including Samsung's Jay Y. Lee, in detention himself while on trial.
The front-runner for the May 9 presidential election, Moon Jae-in has promised to end the practice of pardoning convicted corporate criminals, and to break up the nexus between big business and the government in the world's 11th-largest economy.
Moon is targeting the top four groups - Samsung, Hyundai Motor, SK and LG - according to his economic advisor, Kim Sang-jo, nicknamed "chaebol sniper" for his shareholder activist campaign in the past two decades.
"It will be difficult or almost impossible for chaebol to do things in the ways they used to do," Kim told Reuters.
The key to Moon's chaebol reform policy is to get minority shareholders and board members to drive the pressure for better corporate governance in the family conglomerates, Kim said.
The scandals and calls for reform have a familiar refrain.
Twenty years ago, South Korea began sliding into its rendition of the Asian financial crisis, starkly illustrating the pitfalls in the government-business symbiosis that was the basis of South Korea's remarkable economic takeoff.
The government was forced to take a nearly $60 billion (S$83.64 billion) bailout from the International Monetary Fund to stave off national bankruptcy.
The terms of the bailout required the chaebol to adopt international standards of accounting and corporate governance and to restructure by shedding non-core units.
They could no longer go to extreme levels of leverage for loans, the problem that precipitated the crisis.
In the ensuing years, chaebol chiefs in prison garb were paraded before TV cameras and presidents left office in disgrace over corruption scandals.
Yet the family conglomerates thrived with their pardoned leaders back at the helm.
Prosecutors routinely say they have to weigh the economic consequences of indicting chaebol chieftains - they thought about charging the top echelon of Samsung Group's leaders in the latest scandal, before deciding just to arrest Lee.
While the series of reforms following the 1997-98 financial crisis wrought major change to the chaebol's accounting and corporate governance, it did little to sever the nexus with government, critics say.
Nor did it do anything to disentangle the interlocking shares that define a structure of top chaebols like Samsung and Hyundai Motor Group.
The Samsung family, for instance, runs the giant conglomerate with just over 1 per cent of its total shares while Hyundai Motor Group family owns 3.35 per cent of its total stocks, according to data from the Fair Trade Commission.
"It's impossible to break up the chaebol like what MarArthur did in Japan," said Chang Sea-jin, business professor at Korea Advanced Institute of Science & Technology, referring to Gen. Douglas Macarthur's dismantling of Japan's zaibatsu conglomerates following World War Two.
"What the next president will do is strengthen the role of the board of directors and the shareholders' ability to exercise their rights…"
One potential model for restructuring would be to create a vertical ownership structure with a holding company at the top, replacing the current spiderweb of interlocking shareholdings.
Four out of the top 10 conglomerates including LG and SK have streamlined their corporate structures using holding companies, according to the FTC.
Samsung Electronics said on Friday, however, it would be difficult to adopt a holding company structure for now.
Moon is proposing a more modest goal: legislation that would give minority shareholders more power to nominate board members.
Chaebol leaders are girding for the coming battle.
"We are deeply concerned about politicians riding on populism to push for changes without having a close look at the consequences, which would be unbearable," a source at one of the top conglomerates told Reuters.
"They are denying the basic principle of a market economy."
An official at South Korea's business lobby group, Korea Chamber of Commerce and Industry, said the move "infringes on the rights of large shareholders for the sake of other shareholders."
Samsung Electronics and Hyundai Motor say they are trying to enhance shareholder value, through dividend payments, share buybacks and governance committees under their boards.
Investors say the moves both by the chaebol themselves and from the government could reduce the "Korea discounts" stemming from an opaque governance structure and underwhelming shareholder returns.
Last week, shares of Samsung Electronics hit record highs and Hyundai Motor also gained the most in over five years on expectations for restructuring.
"If Korea can get the same kind of political support behind these initiatives, we could see a wave of corporate activity that can unlock tremendous amounts of value buried in inefficient structures or lazy balance sheets...," said Steve Deitch, a portfolio manager at the Duet Group, which has $5 billion assets under management.
Knut-Harald Nilsson, portfolio manager at SKAGEN Funds, which hold $1.16 billion worth of Korean stocks, said the changes under way show the chaebols will remain strong "but will to a much larger degree work for the benefit of all shareholders, not just themselves."