Opposition pushing new legislation to root out government-business collusion

Posted on : 2016-12-21 17:38 KST Modified on : 2019-10-19 20:29 KST
Amid widespread public anger over Choi Sun-sil scandal, opposition sees opportunity for chaebol regulation and economic democratization
Members of labor unions hold a press conference in front of the National Assembly in Seoul
Members of labor unions hold a press conference in front of the National Assembly in Seoul

Widespread public criticisms of government-business collusion in the ongoing Choi Sun-sil government interference scandal are prompting a flood of legislation proposals for chaebol reform and economic democratization. Politicians are now suggesting the period leading up to the anticipated early presidential election next year could see a wave of related legislation surpassing what was seen in the last presidential election in 2012.

In a Dec. 21 examination of legislation proposals since the Choi scandal erupted in late September, the Hankyoreh found around a dozen amendments proposed chiefly by the opposition, including changes to the Fair Trade Act, Commercial Act, and Distribution Industry Development Act. Others are expected to be proposed before the end of the year.

For the Fair Trade Act, many of the changes focus on beefing up treasury stock regulations for transition to a holding company system and regulations on personal gains and government-business collusion. Minjoo Party lawmaker Park Yong-jin plans to propose an amendment before the end of the year that would restrict voting rights on affiliate stocks (new spinoff stocks) allocated to the holding company when a chaebol affiliate owning treasury stock transitions to a holding company system through an equity spinoff. While treasury stock does not confer voting rights, those rights are revived in the case of a spinoff as new stocks are issued to match treasury stock in the holding company. It‘s the reason chaebol families have been accused of using company money in the form of treasury stock as a simple means of beefing up control and passing on management rights to the next generation. Minjoo Party lawmaker Je Youn-kyung proposed an amendment requiring the prior retirement of treasury stock if a company attempts an equity spinoff to transition to a holding company system.

Fellow Minjoo Party lawmaker Lee Un-ju proposed an amendment that would lower the chaebol family equity percentage for affiliates for which private gains are banned from 30% to 20% for listed companies. Another amendment proposed by the same party’s Min Byung-doo would prevent chaebol from offering donations, contributions, membership dues, or support funds to groups of individuals suspected of posing a conflict of interest.

Proposed amendments to the Commercial Act include plans to beef up treasury stock regulations and the independence of outside directors and institute a multiple derivative suit system and regulations on the transfer of management powers. Minjoo Party lawmaker Lee Jong-kul presented an amendment that would require retirement of treasury stock acquired through a merger or uniform distribution to shareholders within three months of the merger date. He also suggested introducing a multiple derivative suit system, where shareholders in a parent company can request damages on its behalf for illegal actions by directors at an affiliate. An amendment proposed by People‘s Party lawmaker Chae Yi-bai would prevent people from becoming outside directors if they have worked at the corresponding listed company or affiliate within the past five years or worked as an outside director for six years at the listed company, or for nine years if affiliates are included. Min Byung-doo proposed an amendment aimed at preventing management rights battles between chaebol family members - as seen at Lotte - by requiring companies of a certain scale to formulate and announce regulations on the transfer of those rights.

Independent lawmaker Kim Jong-hoon proposed an amendment to the Distribution Industry Development Act extending operating hour restrictions and mandatory twice-a-month closures to department stores and duty-free shops. A similar proposal from Lee Un-ju would increase mandatory closures for superstores to four times a month. People’s Party lawmaker Ahn Cheol-soo proposed a Promotion of the Motion Pictures and Video Products Act amendment that would prevent large companies from being involved simultaneously in distribution and screening. Lotte and CJ are considered the two most prominent examples of combined distribution and screening operations.

“This looks like a reflection of the way chaebol are being seen as the chief offenders in government-business collusion and the need for reforms has been cited in the wake of Choigate,” said Economic Reform Research Institute researcher Wi Pyung-ryang.

“With the ruling party in the minority, the 20th National Assembly is a perfect time to pass reform legislation,” Wi added.

Also on Dec. 20, the Minjoo Party announced “12 legislative policy tasks for the December candlelight revolution,” naming economic democratization as a short-term task and pledging to see it through before the presidential election expected around April of next year.

Business world observers and conservative media criticized the proposed legislation as “anti-business.” But with the Federation of Korean Industries operating in name only as it faces the threat of disbandment, opposition is not what it used to be.

“If treasury stock regulations on holding company transitions are beefed up, it will have a negative impact on places like Samsung, which is currently mulling over a holding company transition,” said a business world source.

Samsung Electronics said last month that it was considering the possibility of transitioning to a holding company system.

By Kwack Jung-soo, business correspondent

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