Minister of Finance and Economy Lee Hun-jai yesterday called on the nation's family-controlled conglomerates, or chaebol, to dismantle their in-house task forces in charge of restructuring.
In related remarks, Financial Supervisory Commission Chairman (FSC) Lee Yong-keun said it was irregular of Hyundai Group's honorary chairman to appoint a new group chairman without following legal procedures.
Meeting with reporters, Minister of Finance and Economy Lee said the chaebol's restructuring coordination bodies should be dissolved if they govern group subsidiaries.
"Chabol's restructuring coordination bodies are only consultative organizations intended to address the effective elimination of inter-unit capital investments and debt guarantees," the top economic policy-maker said. "Whatever they are called, such bodies should be dismantled if they serve as illegal entities trying to control affiliates."
Recalling agreements among the chaebol and their creditor banks on the dissolution of secretariats and planning-coordination departments, Minister Lee made it clear that local groups' restructuring coordination bodies should not be their decision-making bodies.
Signing debt reduction agreements with main creditor banks in 1998 and last year, the conglomerates pledged to break up their group secretariats and planning-coordination bodies.
Noting that a package of policy guidelines for chaebol reform has already been put forward, Lee said the government will put in place an additional set of measures aimed at improving chaebol's governance structures in the second half of this year.
Minister Lee's strong demands came after a recent struggle for control at the Hyundai Group revealed that the group's Corporate Restructuring Committee virtually control subsidiaries.
Hyundai's restructuring committee announced Monday a decision by group founder and honorary Chairman Chung Ju-yung, to name his son Chung Mong-hun as the group's sole chairman, stripping his elder son, Chung Mong-koo, of the group's co-chairmanship.
The appointment, conducted without approval from the board of directors or the group's shareholders, has drawn sharp criticism over Hyundai's lack of management transparency and outdated style of corporate governance.
Touching on Hyundai's power struggle, FSC Chairman Lee pointed out that it was inappropriate for Hyundai's honorary chairman to appoint a new group head, FSC spokesman Kim Young-jae said.
"It is regrettable that Hyundai Group's honorary chairman named the new group chairman without following legal procedures," Kim quoted Lee as saying during a meeting with the heads of the top four chaebol's restructuring coordination headquarters Wednesday. "The nomination also goes against the law and the public's expectations for chaebol reform."
Hyundai's case has also caused foreign investors to become skeptical about the government's will to push ahead with financial and corporate restructuring, according to Lee.
However, the Federation of Korean Industries (FKI), a chaebol interest group, is lukewarm about growing demands for dismantling restructuring coordination bodies at conglomerates.
FKI Chairman Sohn Byung-doo said Wednesday that the dismantling of such bodies will spawn adverse effects as in the case of the Daewoo Group. Daewoo Corp., the first large company to disband its restructuring coordination body during the initial period of restructuring, saw its investment and management functions weakened considerably, Sohn said.
When Daewoo was poised to break up the body, McKinsey Consulting also objected, he said.
"The Hyundai case is regrettable, but the government ran against its own position of emphasizing market economics when it threatened to recall credit unless Hyundai disbands the body," he claimed.
Companies need to have a body responsible for comprehensive analysis and judgment in the course of formulating major investment decision or strategies, he said, adding that its is absurd to dissolve such a coordinating body without any viable alternative.
Updated: 03/31/2000
by Kwak Young-sup Staff reporter
03/31/2000
