Standing Up To The Chaebol
For decades, the founders of Korea's chaebol have had omnipotent control over their conglomerates. If one of their companies wasn't making enough money, they simply plucked the fruits of a money-laden unit and spread the wealth around.
But what if you're a small shareholder in the profitable company and don't like seeing your assets drained away? A group of shareholders and investors have become so alarmed at the practice, they are taking measures to stop it.
The company that has become a test case for Korea's vow to be more transparent and run businesses according to global practices is SK Telecom. The profitable mobile phone operator is a darling of foreign investors--including Tiger Management, Scudder Kemper Investments, and Oppenheimer Global Fund, which own about 10%. But it turns out that SK Telecom isn't as profitable as it could have been. The government found that parent SK Group had reduced its telecom operating profits from 31% of sales in 1994 to 14% of sales in 1996--just by siphoning earnings to other units.
The U.S. investors, joined by a Korean shareholder rights group, now will take their challenge to the shareholders meeting in March. They want the board to accept two outside directors, and give shareholders control over key management decisions, such as making large investments overseas.
They have mounted a challenge to the standard practices of the chaebol. Shareholders are standing up to Korea Inc. and, at the very least, a more transparent way of doing business is likely to result.