No Witch Hunts in Reform of Chaebol

The Financial Times, a British newspaper, pointed out in the Wednesday’s editorial that regarding the Fair Trade Commission’s probe into six top chaebols’ illegal insider trading, the Roh Moo-hyun’s administration’s efforts to reform conglomerates should be praised, but such reform should not result in a corporate witch hunt aiming at chaebol. The following is the summary:

President Roh is carrying out his pledge to reform chaebol. Since the 1997 financial crisis, Korea has been improving the corporate governance such as improving rights of minority shareholders, introducing outside directors and consolidated financial statements, and strengthening the audit and inspection of companies.

However, the arrest of SK Chairman Chey Tae-won last month suggests that there is a long way to go as far as the reform of chaebol is concerned. There are still too much ambiguous corporate governance of large conglomerates and the management by families and relatives, who exercise influence with a status of minority shareholders. When chaebol fails to specialize their businesses and achieve a successful management, Korea will face difficulties between the cheap labor power of China and the technology of the West.

Last year’s economic growth rate of 6%, the highest among the member states of the Organization for Economic Cooperation and Development (OECD), was largely thanks to the increased consumer spending and household loans. In order to achieve an expanded investment in facilities, research and development, the nation should rein in chaebol that monopolizes resources and hampers competition.

However, President Roh faces two difficulties. First of all, the government should neither punish large conglomerates with the administrative authority, nor force them to follow his plan on how to restructure. These tasks should be left to companies and shareholders.

The newspaper also pointed out that the Roh’s administration should not repeat the same mistakes that the previous governments made to encourage investment to sustain the growth rate, since the reckless inflow of a huge amount of capital was a main culprit of Asian countries’ economic crisis.

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