The latest scandal to come out of the Alice In Wonderland world of South Korea’s family-controlled conglomerates, the chaebols, (where, let’s not forget, serving macadamia nuts in a bag is considered a sackable offence) is less spectacular than a spoiled daughter having a meltdown in business class, but probably more worrying to shareholders.
A South Korean website called CEO Score just released a survey showing that in third and fourth-generation chaebols family members on average become executives aged 31, just three-and-a-half years after they have joined the company. Women were on average 29. Nine of the 44 people surveyed were given executive positions a soon as they entered the family firm.
At the moment that might not matter a great deal, because these groups are enormous (Samsung, the largest chaebol, accounts for a quarter of South Korea’s GDP) and these next gens are small cogs in vast machines. But they won’t be so insignificant for ever.
The heads of the chaebols are not getting any younger. Chung Mong-Koo, the chairman of the Hyundai Motor Group is 77. The heads of Hanjin and LG are in their mid-60s. The nominal head of Samsung, Lee Kun-Hee, is 73 and has been in hospital for a year. The chaebols have long been opaque and nepotistic, but rarely incompetent. The idea that entitled brats with little experience will soon be part of the top tier of management is disturbing.
And investors are quickly losing patience with the chaebols for other reasons. This week Hyundai failed to sell $1.25bn of shares in its shipping arm. The sale was meant to help Hyundai meet anti-trust regulations designed to stop chaebol families from enriching themselves from intra-group deals – but it was also designed to give the family a windfall, and shore up their control. The markets were not impressed.
That the group needlessly splurged $10bn on land for a new HQ only a few months ago, seemingly for personal vanity, is no doubt also fresh in many minds.
The chaebols are famous for being unaccountable, overly-complex and for paying poor dividends. Governments and investors have long grumbled, but so far put up with their peculiarities. They won’t do for much longer. If the chaebols want to convince people they are willing and able to change, a good start would be making their kids get proper jobs. It’s time to come out of the rabbit-hole.