The Changing Role of Te Chaebol

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Charlotte Marguerite Powers

The Changing Role of Chaebol
Multi-Conglomerates in South Korea’s National Economy
The chaebol (財閥, 재벌) multi-conglomerates were instrumental in the development of the South Korean economy and will continue to be a source of great economic strength in the future. However, a weak system of corporate governance has exacerbated past financial failures in South Korea and leaves the Korean economy at future risk. To ensure Korea’s success in an increasingly globalized world the South Korean government should continue to streamline past reform and introduce new legislation to encourage a culture of better corporate governance among the chaebol conglomerates.

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stimations about the future value of South
Korea’s massive multi-conglomerate corporations, commonly called the chaebol (財閥, 재벌), tend to be a function of the past roles
they’ve played and failures they’ve caused in Korea’s economy. In similar ways, South Korea’s economic system under the chaebol has often
been criticized as too corrupt or antiquated for
the welfare of Korea’s modern economy. Some
chaebol executives have abused the influence of
their positions, and financial and structural features unique to the chaebol have created or exacerbated repeated financial failures in Korea. Although useful during Korea’s industrialization
and economic development, many agree that
now the chaebol are only a hindrance to national
progress; speeches by South Korean President
Lee Myung-bak have suggested to some that Korea’s economic future relies on the prosperity of small and medium-sized firms, rather than the
chaebol.1 However, the importance of the chaebol
for South Korea’s future economy has been too
quickly dismissed. Given trends of the international economic system, the chaebol will remain the heart of South Korea’s economic prosperity
for a long time to come, so long as the government encourages the continued development of good corporate structure.
This paper will argue that the development
and protection of good corporate governance
among the chaebol is necessary for South Korea’s successful integration into the increasingly

Charlotte Marguerite Powers
Georgetown University

globalized international economy. Past policies
intended to encourage better corporate behavior
have been piecemeal, with gaps and redundancies, and were enacted only as reactionary reform in specific instances of economic failure. Instead,
reform should be part of an ongoing, cohesive
effort to create self-governing norms of corporate behavior which encourage good business within and among firms. Such good corporate
governance is essential for Korea’s successful integration into the increasingly globalized world. Toward this end, the Korean government should
focus specifically on improved implementation
of policies meant to ensure managerial and financial transparency and the accountability of firms and individuals within the chaebol.
This paper will present this argument for
better corporate governance and the importance
of the chaebol in five parts: first, a historical review of Korea’s industrialization and the origins of the chaebol to explain both the strengths and
weaknesses that define the chaebol today as well
as their central role in the Korean economy; second, a brief review of previous studies and theoretical work related to what defines corporate governance, and exploration of the specific benefits for Korea’s development of good corporate governance; third, the 1997 Financial Crisis and

the subsequent reforms passed by the Korean
government; fourth, the effects of reforms in restructuring the chaebol and possible areas where further policies could be used to supplement
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Korea

Chaebol

come notoriously corrupt.4 President Syngman
Rhee himself was accused of creating ethically
questionable financial agreements with the businessmen and industrialists of the post-war period. The few economic plans he...
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