Why Koreans no longer tolerate chaebol's bad behavior

By Tony Munroe and Jack Kim, Reuters

Posted at Dec 10 2014 08:55 PM | Updated as of Dec 11 2014 10:42 PM

Why Koreans no longer tolerate chaebol's bad behavior 1
Cho Hyun-Ah, daughter of Korean Air CEO and executive vice president of the family-run firm, speaks during a press conference in Incheon, South Korea in this file photo. Photo by AFP-Yonhap

SEOUL - The uproar that forced a Korean Air Lines executive to resign after delaying a flight because she was unhappy with the way nuts were served points to growing intolerance of corporate bad behavior in a country dominated by family conglomerates.

Public frustration has long simmered over a culture of impunity that saw bosses of corporate groups known as chaebol often evading jail time for more serious offences. Due to poor governance and stingy dividend payouts, shares of South Korean companies trade at discounts to peers elsewhere.

That culture is slowly changing under the government of President Park Geun-hye, who took office last year after a convincing electoral win partly based on a tougher line on self-serving or abusive behavior by chaebol and their families.

"People have always felt this frustration, but the previous perspective was you can't discipline the chaebol because we can't survive and thrive without them," said Shaun Cochran, Korea head of investment bank CLSA.

In a sign that powerful companies are held to greater account, convicted executives are finding it harder to avoid jail time. Park's government has also passed a law taxing excess corporate cash in hopes of compelling big companies to, among other things, unlock their funds and pay more dividends.

Investors threw a fit in September when Hyundai Motor Co and two affiliates paid $10 billion for a plot of land - more than three times its appraised value. While Hyundai did not back down, it subsequently sought to appease investors by considering more dividends.

Last month, Samsung Heavy Industries scrapped a $2.5 billion takeover of Samsung Engineering due to shareholder opposition, a sign that investors will be more demanding as South Korea's biggest chaebol restructures to preserve family control when generational succession comes.


Korean Air Vice President Heather Cho's conduct on a plane bound from New York to Incheon on Friday struck a nerve because she is the daughter of the carrier's chairman.

Cho, who was in charge of the airline's inflight service, was displeased with being served macadamia nuts in a bag, not a dish, while seated in first class. The pilot brought the plane back to its gate for the cabin crew chief to be expelled.

"There is a spread of the democratic idea in social media that chaebol can no longer be allowed to conduct themselves in ways that make them special in the face of law," said Kwon Young-joon, a professor of commerce at Kyung Hee University.

The Supreme Court in February confirmed a four-year embezzlement sentence for SK Holdings Chairman Chey Tae-won, who has been in prison since January 2013, among the longest terms served by a chaebol boss.

That stands in contrast to earlier guilty verdicts where some high-profile offenders served little or no prison time.

Hyundai Motor Chairman Chung Mong-koo was given a three-year jail term in 2007 for fraud. The sentence was suspended in exchange for community service and a $1 billion charity donation as he was deemed by the court too important to the economy to be jailed.

Kyung Hee University's Kwon said President Park adopted a position of economic democracy that had been embraced by the liberal opposition.

"The courts then took the position that now that we have economic democracy, there won't be any more exception made for chaebol power, and began ruling relatively severely on cases involving chaebol owners compared to past cases," he said.

To be sure, traditional mindsets and practices persist.

Park's justice minister suggested in September that imprisoned corporate chieftains be "given a fresh chance", if public opinion supports it, to create jobs and help the economy.

CLSA's Cochran said behavior will change, over time.

"The fact that Hyundai can go and spend $10 billion on a $4.5 billion building and not worry about it tells you that this problem is not yet solved," he said.