Sunday, August 24, 2014

Korea Commentary: Chaebol Succession

Recent Korean media has highlighted accounts of Succession moves within the Korean chaebol such as the Hyundai Motor Group and Samsung.  This has included a round of restructuring with smaller sister companies merging to strengthen key companies within the Group.

As I have shared in chats, this comes as no surprise and is part of a long term strategy built around two words—Work Funneling.

In this process, most Korean chaebol families have considerable ownership stakes in many of the privately-held sister companies.

Next, the other subsidiaries give these smaller companies a huge amount of business to increase their revenue. Finally, these smaller companies grow considerably over time and can move to an IPO or sell some of their holdings to outside investors.

The families can then use the revenue stream to buy stock in other key publically traded subsidiaries and their chaebols defacto holding company. This ownership stake along with circular, cross and pyramid (radiant) shareholdings give them direct and indirect control over the entire Group.  

That said, despite the chaebols' dominance and influence, they are increasingly coming under pressure from new laws and regulations designed to increase financial transparency and accountability of family members.


For instance, the government recently enacted a “deemed inheritance tax,” so that family members can’t get around South Korea’s inheritance tax laws, and has revised commercial laws to tighten requirements for reporting internal transactions.

Questions, comments, concerns? Feel free to ask.

More to come as I prepare an update on my take on a strengthening Korean Won to US Dollar, as well as what I perceive as a timeline on this year’s Union strikes.  


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