(C) Stratfor
The government has prioritized regulatory rationalization and the reform of the economic penalty system as core national tasks to foster innovative growth. While long-standing issues such as the abolition of the crime of breach of trust have resurfaced, discussions regarding conglomerate regulations—the very culprit behind the "Peter Pan Syndrome" in the Korean economy—remain sluggish. Introduced in the 1980s to curb the concentration of economic power, this system has become a shackle on growth 40 years later, failing to reflect the changed economic environment.
Under the Monopoly Regulation and Fair Trade Act, conglomerate regulations function by binding individuals related by blood to a "Person in Charge" (the "Same Person" or Chairman) into a single economic entity, imposing various obligations and prohibitions. The regulatory web is incredibly dense, ranging from public disclosure requirements to bans on cross-shareholding and debt guarantees, as well as regulations against private interest tunneling. However, while the scale of our economy and corporate governance structures have changed beyond recognition over the past four decades, the regulatory framework remains trapped in the grammar of the past.
The most pressing issue is the excessive expansion of the regulatory scope. Originally, this system was introduced to selectively regulate a small number of top conglomerates. The target group, which initially consisted of only the top 30 groups, has now ballooned to 92 business groups and 3,301 affiliates subject to disclosure requirements. This is a result of designation criteria failing to keep pace with economic growth. Although the criteria for business groups subject to cross-shareholding restrictions were amended to a GDP-linked system, the threshold remains low, undermining the original purpose of "managing mega-corporations."
Even more serious is the lack of realism in defining "related parties." Unlike the 1980s, when the authority of first-generation founders was absolute, the influence of chairmen has weakened through successive management successions. In an era where management disputes between siblings or parents and children are frequent and the influence of private equity funds has grown, it is anachronistic to treat all blood relatives within the fourth degree and relatives by marriage within the third degree as a single economic entity. Regulating them as one unit when relatives are often rivals for management control only serves to stifle normal business activities.
Our legal system already possesses sufficient monitoring mechanisms to check dominant shareholders through the Commercial Act, the Capital Markets Act, and tax laws. Applying a 40-year-old yardstick—created when monitoring tools were nonexistent—to an era of low growth where we must worry about negative growth is a national loss. Without a bold "major surgery" on conglomerate regulations, it will be difficult to restore the dynamism of the Korean economy. The government must focus its efforts on tearing down the framework of outdated regulations and creating an environment where companies can compete freely on the global stage.
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