Korea gives off mixed signals over ethical business practice

Despite Korea taking a stand in recent years over ethical business practices, doubts are now being raised as to whether anything has really changed.

Korea’s regeneration as a modern industrial power in the years following the Korean War was based on export-led growth. The entrepreneurs who led this drive and built the companies we know by names such as Samsung, Hyundai, and LG today were encouraged by governments that prioritized economic goals and were willing to ignore the methods used to achieve them. Today, South Korea’s ten largest conglomerates generate about 80% of the country’s GDP. Samsung alone generates almost 20%.

Government policies created an aura of privileged immunity around the leadership of these family-controlled conglomerates, or “chaebol.” When executives were convicted of fraud, embezzlement, or tax evasion they typically received non-custodial or suspended sentences followed by pardons citing their “services to society.”

Such standards are no longer condoned. The tipping point came last year when President Lee Myung- Bak, shortly before leaving office, pardoned political allies, friends, and dozens of others who had been convicted of corruption and other crimes during his time in office.

The pardons ignited a rare quarrel between him and successor, the current president Park Geun-Hye who described the pardons as an abuse of presidential power. Current thinking is that business tycoons should no longer have legal immunity in recognition of their “contributions to the national economy.”

However, recent court decisions are raising doubts that anything had changed. In February, the Seoul High Court gave Hanwha Group Chairman Kim Seung-youn a suspended sentence, overturning an earlier landmark decision that had forced him to serve time for breach of trust. In giving the lighter sentence, the court said it took into account his contributions to South Korea’s development and his poor health.

Also in February, the same court upheld the conviction Koo Cha-won, the chairman of LIG Group, for a KRW 215bn fraud but handed down a suspended sentence citing Koo’s poor health.

Later in the month, a Seoul court sentenced CJ Group Chairman Lee Jay-hyun to four years in prison and ordered him to pay a KRW 26 billion fine for massive embezzlement, tax evasion, and breach of trust. Mr. Lee attended court in a wheelchair claiming poor health, as have many business leaders before him.

Lawyers expect Mr. Lee to appeal his sentence when it should become clear whether Korean courts really are to play hardball with business leaders who disregard the law or whether it is business as usual for executives who claim they are contributing to society.