On December 9, 2016, the National Assembly of South Korea voted 234 to 66 in favor of the impeachment of former President Park Geun-hye. The Constitutional Court of Korea confirmed the impeachment in an 8-0 decision on March 10, 2017. Shortly after being removed from office, Park was arrested and placed in custody on charges of bribery, abuse of power, coercion, and leaking government secrets. At the heart of the scandal was Ms. Park’s friendship with one of her aides, Choi Soon-sil. Ms. Choi, who has never served as an official government employee, was suspected of gaining high-level access to other government documents and using her influence to coerce various Korean companies into donating large sums of money to nonprofit organizations she controlled. In August 2017, Lee Jae-Yong, then the de facto head of Samsung, was accused of paying bribes to Ms. Choi for preferential governmental treatment in proceeding with a highly controversial 2015 merger between two of Samsung’s subsidiaries. The two scandals noted above are recent examples of a greater problem in South Korea. For decades, the majority of power in the South Korean private sector has been concentrated in massive family-run conglomerates known as chaebols. Chaebols are comprised of businesses in multiple unrelated areas like phones and hotels. Consequently, they make up an incredibly large amount of South Korea’s national GDP. Likewise, in 2017, the 10 largest chaebols in Korea were responsible for 44.2% of Korea’s national GDP. In comparison, the 10 largest companies in the United States were responsible for a little over 10% of the United States’ national GDP. Rising economic inequality in South Korea and political scandals like those referenced above all contribute to a quickly growing public distaste for the conglomerates, with an increasingly prevalent perception among Korea’s citizenry being that the law isn’t adequately enforced on the massively wealthy.

Modern chaebols date back to the Park Chung-hee presidency. Following a military coup and the formation of a military junta, Park became president of South Korea in 1963. In the early 1960s, South Korea was one of the poorest countries in the world and its economy was predominantly agrarian. To jumpstart the economy, the government planned on meeting three development goals: a large labor force, increased foreign investment in labor-intensive markets like footwear and plywood, and the expansion of exports into the world market which allowed for more efficient production in its labor-based economy. As the government provided subsidies as incentives for meeting export quotas to large companies, the country’s largest companies grew alongside the South Korean economy. These Korean companies were largely the remnants of Japanese colonial era-holdings that were obtained by Korean businessmen when Japan abdicated its colony in the wake of World War II. Chaebols often got guarantees by the national government that if they were unable to pay back the massive foreign loans they were taking out, they would be bailed out. Consequently, these companies grew at an unprecedented rate.

After the Asian Financial Crisis of 1997, chaebols were forced to undergo major restructuring. The government liquidated 16 of the 30 largest chaebols and forced the chaebols to sell their non-core assets to other chaebols. The ones that underwent the most rigorous restructuring were the ones that had invested in the most unrelated subsidiaries. For example, Samsung was forced to sell its car business and LG sold its semiconductor business. Today, there are two opportunities for dealing with corrupt chaebols. One such opportunity is what current President Moon Jae-in can do to set a strong precedent in upholding the law in the face of corporate interests, while the other relates to what role the new head of the Fair Trade Commission assumes.

In seeking to set a stronger precedent in upholding the law, President Moon Jae-in has vowed to greatly reduce the usage of presidential pardons on the executives of chaebols. President Moon hopes that this move also encourages the judiciary of Korea to stop overturning charges on those same executives. Historically, presidential and judiciary pardons of chaebol executives have been very common, leading some individuals in Korea to believe that the wealthy are above the law. A recent example includes Cho Hyun-ah, the vice-president and heiress to Korean Air, which is owned by the chaebol Hanjin Group. In 2014, Ms. Cho was involved in the now-infamous “nut-rage” scandal, in which Cho reportedly reacted to her flight staff serving her peanuts in a bag instead of a bowl by physically abusing and humiliating them. The physical and verbal abuse of the staff members coupled with an attempted cover-up by Cho provided enough grounds for a successful lawsuit and a one-year prison sentence. However, just five months into Cho’s prison sentence, an appellate court ordered the remainder of her sentence suspended, allowing Cho to leave prison early.

Consequently, the first  measure that President Moon Jae-in will most likely take against the chaebols is limiting the use of presidential pardons. This would serve two ends. First, it would reduce the number of chaebol leaders inadequately punished for committing crimes of corruption. Second, and more importantly, it would signal a shift in precedent. The list of notable pardons in recent years includes multiple executives who were pardoned by various levels of the judiciary in South Korea. If President Moon reduces the usage of the presidential pardon, it is likely that the courts will follow suit and reduce special treatment towards chaebols. A change in precedent is important because not only are the business leaders shown the benefit of the doubt in their personal lives, but the businesses they are at the helms of also get preferential treatment. A recent example of this is the backing of Samsung’s merger mentioned earlier in the article.

A notable appointment by President Moon is Kim Sang-jo, the new head of the South Korean Fair Trade Commission, the central government’s primary antitrust body. Kim has already began work on regulating chaebols by strengthening regulations on cross-holding. Cross-holding is a practice in which some of the independent businesses in a conglomerate own a substantial amount of equity, or ownership of stocks, in other businesses within the same conglomerate. One year ago, when Kim Sang-jo publicly began imposing cross-holding regulations, 10 out of the 57 chaebols with public disclosure requirements held 282 cross-holding ties. However, in April of this year, the Fair Trade Commission announced that only six of those same businesses held a total of 41 cross-holding ties. Regulations on cross-holding are vital to reducing corruption within chaebols, as when an independent business in a conglomerate like Samsung Life owns a substantial portion of another business within the same conglomerate, such as Samsung Electronics, a single executive has substantial control over both of those companies, making it much easier for that executive to hand control over to his children or some other successor.

President Moon Jae-in and Kim Sang-jo are poised to create lasting change in the legal oversight of South Korea’s business leaders. Within this administration, two actors are already making headway on chaebol regulation. President Moon’s plans to reduce the number of presidential pardons will bolster the rule of law within South Korea. Kim Sang-jo and the Fair Trade Commission are limiting the ability of chaebols to engage in activities like cross-shareholding, and given the policy success Kim has encountered with this measure, it is likely he will persist in expanding regulatory governance to other areas. Thus, coming decades could see a South Korea in which individuals and corporations are both more equal under the eyes of the law.