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     Mar 25, '14

Korea's jailed bosses keep power points
By Aidan Foster-Carter

When Forbes last May published its annual list of South Korea's 50 richest - up from 40 before: times are good - the accompanying story didn't focus on the perennial number one. What more is there to say about Lee Kun-hee, chairman of Samsung Electronics and global titan?

So they led on his nephew instead. Cheil Jedang used to be the foods arm of Samsung, best known for sugar and flour. It's a lot less starchy now. Spun off in 1993 amid enduring family acrimony - on February 6, the Supreme Court ruled against ex-chairman Lee Maeng-hee, who had claimed his younger brother Kun-hee cheated him of a US$850 million legacy from their father - the group rebranded as CJ in 2002 is now way cooler: as a major force in entertainment in Seoul.

Cue an interview with Maeng-hee's son and heir. Fashionably

tieless, wineglass at hand, Lee Jay-hyun was a smiling poster-boy for the global success of South Korean movies and music.

That made CJ a "darling of investors"; an analyst called it "stable and reliable". In 2012, the 14th-ranked chaebol, usually translated as "conglomerate", had revenues of $25 billion. Flagship CJ Corp's stock price was up 84% since Forbes last reported, boosting Lee's wealth 70% to $1.7 billion and putting him in the top 10, up from 22.

Yet the Forbes headline, "Cashing In on Pop Culture", turned out to be all too literally true. Less than a month later, prosecutors raided CJ offices and Lee's residence. In July, Lee was indicted for tax evasion, breach of fiduciary duty and embezzlement, and remanded in custody. Convicted on February 14 of misappropriating CJ assets worth 160 billion won (US$150 million) for offshore personal slush funds and the like, he was sentenced to four years in prison and a 26 billion won fine.

The hunched figure wheeled into court was hard to recognize behind a weird niqab-like scarf.

Tycoon in wheelchair is a well-worn cliche evoking cynicism in Seoul, but Lee had had a kidney transplant last August and claims a raft of other ailments: Charcot-Marie-Tooth disease, high blood pressure and cholesterol. The court believed him: for now, he's in hospital, not in jail.

In that regard, Lee is luckier than another chaebol chairman of the same age (53) and similar in wealth ($1.56 billion), but a bigger fish altogether: Chey Tae-won of SK. Formerly Sunkyong - shrinking names to two letters is big in Seoul: think LG (Lucky-Goldstar) - SK may lack the global brand recognition of Samsung or Hyundai Motor, but is actually larger than the latter.

In 2013, SK Holdings was placed #57 in Fortune's Global 500, with revenues of $106 billion in 2012. SK businesses include Korea's top oil refinery and mobile-phone provider, plus since 2012 the world's #2 chipmaker, now SK Hynix, acquired at an auction with no other bidders.

Even while he clinched that dubious deal, Chey Tae-won was in trouble. And not for the first time. Jailed in 2003 for a $1.2 billion accounting fraud, but freed just three months into his three-year sentence - those were the days - Chey fought an epic duel with a foreign investor, Sovereign Asset Management, which argued that a convicted felon shouldn't still be in charge of SK.

Chey won, playing the nationalist card. In 2005, Sovereign cashed out, netting a cool 755 billion won. Markets reckoned Chey had learned his lesson and that SK's governance was much improved. Formally pardoned in 2008 by then-president Lee Myung-bak, himself a chaebol man (as a former Hyundai CEO), in 2010 Chey Tae-won was picked to host a global business leaders' meeting held alongside the Group of 20 summit in Seoul. Not everyone thought this a great choice.

Then oops, he did it again. In January 2012, Chey was indicted for embezzling $45 million from SK for his own investment in futures and options, which bombed. The mills of justice grind slow, but a year later he was found guilty and jailed for four years. Last September, the High Court rejected his appeal, and for good measure jailed his little brother too; quashing the original verdict that SK vice-chairman - yup, it's all in the family - Chey Jae-won wasn't involved in the fraud. On February 27, the Supreme Court confirmed both brothers' convictions and sentences.

With no chance of early release, Chey Tae-won will stay behind bars until 2017. On March 1, the JoongAng Ilbo, Seoul's leading daily, fretted that this would be awkward for running SK - in practical rather than ethical terms. It did moot the possibility of a reorganization, citing a cousin Chey Shin-won as available (hey, gotta be a Chey, eh?). But only on March 5 did SK finally do the decent thing, sort of: announcing that Chey Tae-won is to resign all his posts.

It didn't say he's actually done so yet, mind you. Chey's former positions won't be filled but will remain vacant, which is ominous. And he will still be SK Group's largest shareholder. And CJ's Lee? He is reportedly resigning some posts, but keeping others. Not good enough.

Need one spell it out? Apparently so. In other OECD member states, and anywhere else that takes governance halfway seriously, Chey Tae-won would have fallen on his sword in 2003 and never come back. Law, peer pressure, principle or all three would have seen to that.

Inter-cultural studies claim shame is a big deal in South Korea. No one seems to have told the chaebol. Chey and Lee behaved as though SK and CJ were their personal piggy-banks. Even now, behind bars again and this time with no get out of jail free card, does Chey really get it?

Aidan Foster-Carter is honorary senior research fellow in Sociology and Modern Korea at Leeds University, UK, and a freelance writer, consultant and broadcaster on both Koreas.

(Copyright 2014 Aidan Foster-Carter)




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