Little guy vs. Korean big business

Minority shareholders showed top conglomerates some spunk at theannual meetings on March 20.

Standing up to Korea's mightiest corporations, Jang Ha Sung is often likened to a David confronting Goliath. ("I feel much smaller than that actually," says the law professor.) In a country where the conglomerates, or chaebols, traditionally have had no one to answer to, he's a champion of shareholder rights and an irritant to big business.

Mr. Jang, head of a group called the People's Solidarity for Participatory Democracy (PSPD), believes democratizing corporate governance will help put South Korea's economy back on track. Last Saturday, with a battery of TV cameras trained on him, Jang posed questions and jangled the nerves of Samsung's top management during the annual shareholders meeting. While credited with raising Korea from the ashes of war, the chaebols are still plagued by inefficiencies that helped precipitate Korea's economic crash in late 1997.

In Korea, the idea of shareholders asserting their rights was unheard of - until Jang attended his first Samsung Electronics meeting last year. This year, friends joked that Jang should ride in on a white horse brandishing a sword. He and the PSPD are demanding accountability and transparency from business leaders who have long done as they saw fit.

Attempting to thwart Jang's efforts, Korea's top five chaebols held simultaneous annual shareholders' meetings last Saturday. While Jang attended Samsung's meeting, PSPD members went to the others.

Chaebols' habits

The world's largest producer of memory chips, with $16.6 billion in sales last year, Samsung Electronics is currently struggling with its year-old car manufacturing project, at the behest of Samsung group chairman Lee Gun Hee. Jang challenged the project, which was apparently inspired by Mr. Lee's love for driving, not rigorous market analysis. A major criticism of the chaebols is that instead of focusing on successful core businesses, they waste profits on expansion into risky ventures.

With great panache, Jang unfurled records of the 1998 board of directors meetings, showing that seven of the 26 members had not attended a single meeting but still received a salary. "Do these people exist?" he asked.

Jang fights an an uphill battle, but his impact is best measured by Samsung's efforts to counter him. He had planned to canvass for proxy votes from institutional investors in New York and London. But Samsung threatened to withdraw its lucrative business of underwriting initial stock offerings from anybody who helped Jang. The trips were canceled. (PSPD's proxy votes still amounted to 15 percent of Samsung Electronics stock.)

In the foreign-investor corner, Jang has plenty of support. "What he does has reverberations across the whole corporate sector," says a securities analyst.

But in the meeting auditorium's mezzanine, two Samsung officials reeled off reasons why some of Jang's proposals were impractical and could hamper management.

"They're asking for too much in too short a time," says one. Jang had hoped to institute changes including shareholder approval for large transactions, an end to intergroup debt guarantees, and more minority shareholder voting power.

According to Jang, just two days earlier Samsung Electronics was willing to compromise on 90 percent of his suggestions. But last Friday Samsung group chairman Lee apparently intervened and called the whole thing off.

"Samsung Electronics managers are very able and do understand why we need corporate changes," says Jang. The problem is group chairman Lee's "control of everything, his uncontested power. There's no check or balance." Family members who created the chaebols still dominate decisionmaking.

A pending lawsuit accusing Lee of making illegal political contributions and supporting a failed subsidiary could put a check on that power. Already, PSPD has won a suit against Korea First Bank for mismanagement, and persuaded the chaebol SK Telecom to appoint outside directors.

Progress for shareholders

The Samsung shareholders meeting, a normally stodgy, stage-managed affair, was at times a riot of accusation and interference. But Jang acknowledges the company's cooperation. "Samsung was an excellent meeting ... compared to Hyundai Heavy Industries," he says. In Ulsan City, Jang's colleagues were searched at the door and physically forced back in their seats when they spoke out. Hyundai has an "organized crime" attitude, says Jang.

Sticking to conditions set by the International Monetary Fund in return for a humbling $58 billion bailout, South Korea's government has been praised for taking steps toward financial reform. Unemployment has soared, but this year, the economy is expected grow 2 percent. Last year the gross domestic product shrank 6 percent, the most severe contraction since the end of the Korean War.

The government and banks have been restrained toward chaebols, fearing repercussions from pressuring the heavily indebted but well-connected conglomerates. The top five chaebols pledged to restructure and halve the number of subsidiaries last December. But, say analysts, if corporate reform dawdles, Korea may face years of muddling recession, just like Japan.

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