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.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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