Family-controlled conglomerates or chaebol find themselves increasingly under siege for what appears to be their failure to adapt to a new business environment that calls for transparent and law-abiding management

2013-10-13 17:24

Chaebol under siege

Hyosung probe ought to give lessons to other groups 
Family-controlled conglomerates or chaebol find themselves increasingly under siege for what appears to be their failure to adapt to a new business environment that calls for transparent and law-abiding management. The latest victim is Hyosung Group, the nation’s 26th largest conglomerate with more than 11 trillion won in assets. The prosecution banned three sons of group Chairman Cho Suck-rae and other executives from leaving the country on Saturday, following its unannounced raid on the homes and offices of top executives of Hyosung Group a day earlier. The chairman has been prohibited from leaving Korea since July, when the National Tax Service launched a tax investigation into the group.Hyosung is suspected of evading hundreds of billions of won in corporate taxes by cooking its books for a decade to cover up losses incurred in the wake of the 1997 currency crisis. Chairman Cho, 79, is charged with keeping shares worth more than 100 billion won under borrowed names to evade taxes. The conglomerate is also suspected of establishing paper companies in tax havens to create slush funds.
The group denied the tax evasion and embezzlement allegations, saying they had owned borrowed-name accounts since the 1970s to protect themselves from hostile takeover attempts.
This is not the first time that Hyosung Group, whose chairman is connected with former President Lee Myung-bak through the marriage between the chairman’s nephew and Lee’s daughter, has faced tax and prosecution investigations.
In 2009, prosecutors probed the conglomerate on charges of creating slush funds, but the investigation fizzled out merely with the indictment of two executives, allegedly influenced by pressure from the presidential office. Back then, there were a plethora of suspicions, but the prosecution wrapped up its probe hurriedly without digging deeper into how the slush funds were created and used and whether there were instructions from above.
Given this, prosecutors should investigate the Hyosung case thoroughly this time so that there can be no doubt whatsoever. This explains why the prosecution must secure enough evidence and disregard political considerations in conducting the investigation, especially to allay rumors that the Park Geun-hye administration is trying to use the incident to tame chaebol.
Businesses are airing their grievances over what they claim are excessive crackdowns on companies, especially conglomerates, at a time when the government needs to encourage the business community to focus on revitalizing the sagging economy.
But the time is long past for the conglomerates to stick to tax evasion and other illegalities, alleging that they are just conventional practices. Rather, the recent string of wrongdoings involving chaebol ought to serve as a catalyst for them to bring their management in line with global standards.
It’s regrettable in this regard that our big businesses still fail to break with the shameful past. They should be reborn, armed with transparent and responsible management systems.