Few people within or outside the country doubt that Samsung Group will remain the nation's premier business entity 10 years from now, though it may not still be producing 15 % of South Korea's GDP or accounting for 20 per cent of our total exports. Yet, the conglomerate - now facing rigorous scrutiny following a whistleblower's allegations concerning the creation and use of massive slush funds - needs to reform its business practices, if it is continue as the locomotive of the Korean economy.
Kwon O-kyu, deputy prime minister for economic affairs, advised Samsung Group that it should take the current turmoil as an opportunity to change the way it conducts business. The government's top economic official pointed out that Samsung has more room to improve its "governance structure and business paradigm".
Kwon made this assessment of Samsung and other conglomerates during a public seminar on the decade after Korea's signing of a bailout agreement with the International Monetary Fund in the midst of the Asian financial crisis. He concluded that the top firms have not learned enough from the 1997-98 adversities, which spurred Korean businesses to enhance their transparency, financial soundness and corporate accountability, so as to get in line with global standards.
Kim Yong-chul, the former legal counsel of Samsung Group, and the epicentre of the current imbroglio, claims that the prosecution has uncovered between 1,500 and 1,600 secret bank accounts in "stolen names" - using others' names without their knowledge - in its search of Samsung Securities' computer files. He says he learned this while being interviewed by prosecutors.
Possibly related to the alleged discovery of secret accounts for stashing slush funds, the Seoul prosecution prohibited 10 more executives of Samsung subsidiaries from leaving the country; this in addition to the earlier overseas travel ban on 15 Samsung officials. Meanwhile, the bipartisan law on the appointment of an independent counsel to investigate the Samsung scandal took effect Tuesday (4 Dec), and the special prosecutor will start an investigation later this month.
The special probe will cover the creation of the slush funds and their use in bribery and political donations, as well as the illegal transfer of Chairman Lee Kun-hee's wealth to his son, Jae-yong. The limited operating period of the independent counsel makes it doubtful that the probe will be able to get to the bottom of the alleged corporate malfeasance, but it may at least reveal some of the business empire's clandestine operations.
People wonder why the business group, which makes huge profits from its annual turnover of 150 trillion won (US$160 billion) needed so much hidden money, and why it had to employ such intricate means to avoid or reduce donation taxes in preparing for the eventual father-to-son change of corporate ownership. Some analysts say that all the shady financial practices of Samsung converge on a scheme to prolong the family control of the conglomerate.
As is well known, many problems with Samsung Group stem from the Lee family's maintenance of corporate control, even with a relatively small amount of shares; this is possible due to the extremely complicated circular investment among subsidiaries. In order to maintain this ownership structure, Samsung must rely on financial practices which are increasingly incompatible with global standards.
Kim Yong-chul's disclosures are all about Samsung's recent past. While prosecutors are looking into Samsung's present, its numerous shareholders, either Korean or foreign, must be hoping that the conglomerate will be able to convince them that its future will be different. (The Korea Herald/ ANN)