Corporate Governance and Firm Legitimacy: Chaebol Governance and Political Corruption in South Korea

Abstract: As the imprisonment of Samsung's heir, Lee Jae-Yong, indicates, South Korean conglomerate groups (chaebol) face enormous difficulties in protecting their private property via father-son inheritance. However, the chaebol structure, having put the democratically elected government officials under their payroll, is one of the most resilient forms of corporation governance and highly effective in adapting to changing environments. Given the deadlock between the reform-minded government and the unrelenting chaebol-government collusion, we suggest that adopting a Swedish governance model may be a solution. It would legitimize ownership concentration by founding families while allowing the chaebol to own financial firms. It would also reduce inheritance taxes for male heir succession in the chaebol to guarantee private property rights. The consequences of a Swedish governance model include the fading of the need for state-chaebol collusion in so far as the presidential pardon of the imprisoned chaebol owners is no longer allowed.