SEOUL -- When Moon Jae-in took office as South Korea's new president almost two years ago, he was confident that he could reform the country's over-powerful, family-run chaebol conglomerates.
"I was not given any money from them," said Moon at a dinner with a group of foreign correspondents when he was a presidential candidate. "I have no debt to pay back them. I will push for strong reform."
But little has been done in the 19 months since his inauguration to deal with these chaebol, which are often protected by complex cross-shareholdings and many tainted by allegations of corruption. Discontent with the government's failure to address the hold these companies have on the economy spilled out on to the streets last month when more than 150,000 factory workers went on strike.
Now the baton of reform may be passing to activist investors. Investment funds from the U.S., Europe and even South Korea, are increasingly focusing on opportunities presented by an overhaul of the country's corporate governance code that gives minority shareholders greater influence over management.
In recent weeks and months, activists have scored minor victories at Samsung and Hyundai, while the parent of Korean Air Lines has been called to account by a domestic fund.
The emergence of a domestic activist was particularly notable, said Park Ju-keun, president at CEO Score, a corporate analysis company. "While the government is idling on the reform, activist funds are pushing for improved corporate governance," he said. "I think we will see these things happening more frequently. Conglomerates need to make sure their corporate governance is transparent so they are not targeted by activist funds."
Choi Young-ik, who advised on a high-profile campaign by U.S.-based Elliott Management against Samsung, recently told the news agency Bloomberg that inquiries from activists had trebled.
They are challenging the management of companies that dominate the South Korean economy. The five largest chaebol -- Samsung, Hyundai Motor, SK, LG and Lotte -- account for more than half of the country's benchmark Kospi index.
The most aggressive group pushing for reform is Elliott Management, the world's largest activist fund, led by Paul Elliott Singer. Elliott has targeted Samsung and Hyundai Motor for several years by intervening in key mergers, acquisitions and restructurings.
Though Elliot failed in its attempt to block the merger between Samsung C&T and Cheil Industries in 2015, the fund continued its campaign to force Samsung Electronics and Hyundai Motor to increase shareholder returns.
Last week saw one victory in the ongoing fight. Samsung Electronics retired 7% of its common stock and 8.9% of its preferred stock worth 4.9 trillion won ($4.4 billion), as part of its strategy to benefit shareholders.
Already, in February, the board had recommended the appointment of three new independent directors after pressure from Elliott for change.
Hyundai Motor also announced recently that it would buy 2.8 million treasury shares worth 254.7 billion won by the end of February to boost its stock price and shareholders' value. This week it also surprised investors by promoting several foreign executives to senior roles, a first step toward the management diversification long demanded by minority shareholders.
Hyundai's decision to buy treasury shares came two weeks after Elliott sent a letter to its board directors to fix the automaker's poor performance.
The carmaker's decision to buy back stock and promote foreign management still falls short of the type of change that Elliott is demanding, however. The U.S. fund wants the group to return billions in excess capital to shareholders, review noncore assets, and install new independent directors in moves it believes will address Hyundai's recent poor performance.
Hyundai Motor's operating profit plummeted 76.0% to 288.9 billion won in the third quarter from a year ago, with its net profit falling 68.4% to 269.2 billion won during the same period.
Hyundai Motor has acknowledged shareholders have the right to demand better returns. "We will do our best to satisfy our shareholders. We are sorry that our performance is not so good nowadays," said a company spokesperson.
Analysts say that Hyundai Motor is a good example of how owner risk can damage a company's value and reputation. In 2014, the automaker bought land owned by state-run utility company Kepco for $10 billion, three times the property's independently assessed value. Hyundai Motor Chairman Chung Mong-Koo made the decision.
"The $10 billion that was spent on the land could instead have been spent on R&D on electric cars technology, autonomous technology, acquiring car-sharing startup or any other technology that traditional companies are scrambling to acquire since that event," said Peter Kim, an investment strategist at Mirae Asset Daewoo.
Meanwhile Korea Corporate Governance Improvement Fund last month became the first domestic investor to challenge one of the country's powerful chaebol conglomerates when it took a 9% stake in Hanjin KAL, owner of Korean Air Lines. The fund has been quoted in Korean media as saying the group's affiliates have been undervalued due to "idle assets and deferred investment."
Not all activism is led by funds, however. In the absence of action from the president, parliamentarians are also stepping up the pressure for reform. Ten lawmakers recently submitted a bill that could begin untangling Samsung's cross-shareholdings by forcing its insurance arm to sell off holdings in affiliates, including the electronics arm, if passed.
The result would be to weaken control of the Lee family. Samsung Electronics Chairman Lee Kun-hee is the largest shareholder of Samsung Life Insurance, with a 20.76% stake, followed by Samsung C&T which has 19.34%. Samsung Electronics Vice Chairman Lee Jae-yong, son of the chairman, controls C&T with 17.08% stake.
"We want to prevent [an insurer] from controlling other companies through policyholders' money," said Rep. Park in the bill.
The bill is pending at a committee of the National Assembly, but it may still fail as opposition parties worry over its impact on the market.
Not all chaebol are under immediate pressure to change, however. Some, such as SK and LG, the country's third- and fourth-largest conglomerate by assets, were early to adopt a Western-style holding company system in the aftermath of the Asian financial crisis.
Still, the dominance of these vast conglomerates is not good for the South Korean economy, nor is it sustainable, argues Park Sang-in, a professor at Seoul National University's Graduate School of Public Administration. Even with increased activism, the government needs to act.
"The government should resolve the chaebol-centered economic bloc to offer chances for fair competition and innovations," said Park. "If the chaebol keep their power through succession, this will weigh on the economy by blocking new companies from entering the market and hurting the growth of venture capital."
Chang Ha-Joon, economics professor at the University of Cambridge, said that corporate governance should be reformed to give greater say to long-term stakeholders rather than short-term investors such as Elliott.
"Like Germany and Sweden, we should appoint board directors from union leaders and community representatives, raising the voice of groups who are more interested in long-term growth," said Chang in a forum in Seoul hosted by the Federation of Korean Industries. "We should encourage investors to own their shares for a long period by giving more voting rights for long-term investors or cutting their taxes."