SEOUL -- Though South Korean conglomerates have enjoyed rapid growth thanks to bold investment decisions by their owner-managers, many suffer from poor management transparency.
Samsung was taken to court in Seoul last month by an activist shareholder, a U.S. hedge fund that opposes an internal merger it claims has unfair terms designed to facilitate succession within Samsung's founding family.
Samsung is not the first such concern to have transparency issues pointed out by foreign investment funds. Soon after the 2003 arrest of SK Group Chairman Chey Tae-won on charges of illegal trading, an investment fund used its position as a major shareholder to demand management reform. In 2008, Hyundai Motor Chairman Chung Mong-koo was convicted of breach of trust. He was involved in embezzlement while preparing for his oldest son to take over.
These governance problems are why South Korean shares trade lower than corporate earnings suggest they should -- creating the "Korea discount."
But views have changed in South Korea.
"During the time of rapid economic growth, the interests of the country, major companies and individuals were in accord, but that time has passed," said Jeon Sang-jin, a Sogang University professor.
The sense that some fraud is inevitable within the conglomerates propping up the national economy has faded, making it time for South Korean businesses to improve transparency.