hankyoreh

Significant changes are predicted this year for Fair Trade Commission (FTC) designations of chaebol group chairmen. With numerous chaebol chairmen passing away or declining in health over the past year or stepping down from management positions due to deteriorating performance or other personal reasons, new heads have either already been or are scheduled to be installed at numerous groups.

According to accounts on Apr. 16 from the FTC and different chaebol groups, relevant materials were submitted by the groups late last week for the FTC’s upcoming May 1 designation of conglomerate groups with over 5 trillion won (US$4.41 billion) in assets and their “identification individuals.” The term “identification individual” refers to the individual who exercises management rights for the group, or the corporation in cases of groups without such an individual. Once a group requests a change in identification individual, the FTC reviews factors such as equity ownership and practical control over group management before making a decision on whether to accept the change.

The Hanjin Group, which faces having to change its identification individual following the death of chairman Cho Yang-ho, did not submit any relevant documentation. The FTC said it had “received a request for postponement owing to Mr. Cho’s sudden death and funeral proceedings.” For Hanjin to request a change in identification individuals, it will first need to dispose of his remaining 17.8% stake in the holding company Hanjin KAL and reach an agreement among three generations of ruling family members on the exercise of future group management authority. While many see Cho’s son – Korean Air President Cho Won-tae – as likely to take over the reins, concerns about “owner risk” have been mentioned as a possible variable, as well as the similar Hanjin KAL ownership percentages of the third-generation of Chos, which all fall around the 2.3% range.

The FTC is also considering putting off all identification individual designations until mid-May if the Hanjin request is delayed. In a recent broadcast appearance, FTC Chairman Kim Sang-jo said, “Corporation head designations usually happen on May 1, but the law allows for the procedures to be delayed by around two weeks depending on the circumstances.”

LG and Doosan have respectively requested the designation of chairmen Koo Kwang-mo and Park Jeong-won as identification individuals in place of former Chairman Koo Bon-moo and Chairman Emeritus Park Yong-gon, both of whom passed away in the last year.

While Hyundai Motor executive Vice Chairman Chung Eui-sun was seen as a likely candidate for identification individual designation owing to the deteriorating health of his father, Chairman Chung Mong-koo, the group decided not to apply for this year.

“Chung Mong-koo’s health is not what it used to be, but his condition is not severe, and with Chung Eui-sun’s promotion to Executive Vice Chairman last September being followed up with appointments late last year setting up a ‘loyalist’ system in terms of organization and appointments, my understanding is that there is no need to rush into a new identification individual designation,” said a Hyundai Motor senior official.

In contrast, Hyosung communicated to the FTC this year and last year that it intended to have a new head designated following Chairman Emeritus Cho Seok-rae’s de facto withdrawal from management in 2017 and the promotion of his eldest son Cho Hyun-joon to chairman – but without success. In its explanation, the FTC said that Cho Seok-rae “cannot be seen as having fully removed himself from decision-making.”

The Kolon Group did not request a new head designation despite Chairman Lee Woong-yeol declaring his withdrawal from management late last year. At the Kumho Asiana Group, Chairman Park Sam-koo’s announcement of his withdrawal from management raised the possibility of a new head being designated – but the need to designate an identification individual could be obviated if the sale of Asiana Airlines and its subsidiaries results in assets dropping below 5 trillion won.

Since the designation of a new head effectively translates for chaebols into a transfer of management authority, changes rarely occur during an existing head’s lifetime – but precedents do exist. In May 2018, the FTC designated Samsung Vice Chairman Lee Jae-yong as identification individual in place of father Lee Kun-hee and Lotte Group Chairman Shin Dong-bin in place of General Chairman Shin Kyuk-ho. In both cases, the decisive factor in the re-designation was the previous head’s inability to sustain long-term management activities due to health reasons.

By Kwack Jung-soo, business correspondent

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