hankyoreh

The family of Hanjin Chairman Cho Yang-jo. At left is Cho Hyun-ah

A new report claims that there are structural problems underlying the scandals involving chaebol leadership, including Korean Air senior managing director Cho Hyun-min’s (35) ‘water rage incident’ and the erratic behaviour of Hanjin Group Chairman Cho Yang-ho’s family. One of the key issues is that there are no controls or checks and balances on the use of legal shortcuts or the illegal transfer of management rights.

Cho Yang-ho’s three children were all promoted to executive positions within 3-6 years of joining the company, without proving their managing capability, and have recently been reinstated to their positions despite a history of illegal behavior. Experts believe that there will be similar incidents in the future unless there is a change in the attitude held by many of the chaebol family members that companies are “theirs to do with as they please”

Cho Hyun-min joined Korean Air in 2007 as the head of the advertising, promotion and planning team, and was promoted to an executive position (assistant managing director) four years later in 2011. Two years after that she became an executive director and received another promotion to senior managing director the following year. She is also the CEO of both Kaltour and the KAL Hotel Network.

Her elder sister, Cho Hyun-ah (44), is the President of the KAL Hotel Network, while her elder brother Cho Won-tae (43) is the President of Korean Air. Cho Hyun-ah joined the company in 1999 after graduating from university and became an assistant managing director in 2006. Cho Won-tae first entered the firm in 2004 and had already been promoted to assistant managing director by 2007. Among the three siblings, he took the least amount of time to become an executive, and eventually became president of Korean Air after 12 years.

As children of the group CEO, the three siblings were able to climb the corporate ladder at rapid speed, while ordinary employees have to fight through fierce competition for 15 years to obtain an executive position. For example, Korean Air vice president Woo Gi-hong entered the company in 1987 and was only promoted to an assistant managing director 18 years later in 2005. It took him another 12 years to become vice president, including a stint as managing director.

The transfer of management rights at Korean Air has been plagued by illegal actions and circumventions of the law ever since Cho’s father was in power. When Cho Yang-ho took over as chairman from his father Cho Jung-hun, he was penalized and convicted of tax evasion on several occasions. He was even arrested on suspicion of evading taxes as part of an investigation by the National Tax Service in 1999. It was found that he had created an illegal slush fund to pay gift tax and took advantage of a legal shortcut related to gifted funds. The tax penalty of one trillion won (about US$1 billion) imposed on Hanjin Group was the largest ever recorded at the time.

There are also suspicions that Cho’s children have engaged in fraud, including being offered work under dubious circumstances. Near the end of 2016, the Fair Trading Commission claimed that Korean Air subsidiaries including Cybersky and Uniconverse had paid illegal profits to the family of the company’s head through insider trading, imposing a 1.4 billion won fine (US$130 million) and reporting President Cho Won-tae to prosecutors. At the time, the three siblings owned 100% and 85% of Cybersky and Uniconverse respectively. This case returned a not guilty verdict in an appellate court, but is pending an appeal to the Supreme Court.

Cho Hyun-min was relieved of her duties as Korean Air Executive Director on April 16 and placed on standby. However, she remains the CEO and vice president of Jeongseok Enterprise, CEO of Kaltour, CEO of the KAL Hotel Network and vice president of Jin Air.

It is expected that Cho Hyun-min will be able to quietly return to her management position once the furor regarding the Korean Air scandal dies down, just as her sister and former vice president Cho Hyun-a was able to do. Kim Sung-gi, Chairman of the Korean Air Pilots Union, stated, “Once the standby order is lifted, she can return to her position at any time. Cho should resign from all of her management positions immediately, and management should promise that this will not happen again.”

Even while on probation for the “nut rage scandal,” Cho Hyun-min was reinstated as president of the KAL Hotel Network on March 29. Meanwhile, Cho Won-tae was caught by a civilian in 2000 when he ran over an on-duty police officer and fled the scene after being caught violating traffic laws. In 2005, he was reported to police for verbally abusing and physically assaulting an elderly woman in her 70s, and in 2012 he spouted verbal abuse at the leader of a civic group who was conducting a one-person protest at Inha University, whose foundation is owned by the Hanjin Group.

However, Cho was unfazed by media criticism at the time. These examples demonstrate that the three siblings have been given a series of rapid promotions without any examination of their management capabilities and received large sums of money through expedient or illegal channels, while viewing all of this as nothing out of the ordinary.

Some have called for both internal and external systems to police the families’ group chairmen in the wake of these scandals. “Looking at the conduct of the Cho family at Korean Air, it seems that they cannot change on their own. They need external pressure to remind them that they have the potential to lose their power,” said Kim Ho, CEO of The Lab H. Cho Yang-ho mentioned in his 2015 New Year Address that he would “establish a communications committee which includes external members,” but failed to keep this promise.

In a report on the 2014 nut rage incident, Song Min-kyung, a researcher at the Korea Corporate Government Service, wrote, “The ownership risk, transfer of core management rights and corporate responses at Korean Air should be viewed as part of an overarching problem with the company’s corporate governance structure. There is no internal body to ensure that the transfer of executive positions and management rights are handled responsibly, and the articles of association and board regulations do not specify who has the authority to transfer management rights or who should be held responsible.” Even after the scandal, Korean Air has not changed its systems, and has even expanded the influence of family members in executive positions at its subsidiaries.

“The third generation of chaebol families are participating in important internal decisions without having proved their management ability, so risk-management safeguards are sorely needed,” said Sung Tae-yoon, an economics professor at Yonsei University. “Shareholders need to demand internal controls on board members.”

“President Moon has stressed the importance of doing away with abuses of power, and the Anti-Corruption & Civil Rights Commission even decided to publish a set of anti-corruption guidelines. It appears that the family that owns Hanjin should be the first target of those guidelines,” stated Kang Jung-min, a researcher at Solidarity for Economic Reform.

By Choi Hyun-june and Park Su-jin, staff reporters

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