Good Honest Dollar $$

Despite being convicted last year on charges of embezzlement and raising a slush fund to bribe government officials, Hyundai chairman Chung Moon Ko will not serve any prison time.

Mr. Chung’s initial punishment was a three year suspended sentence. But even that was overturned in August when he, along with approximately 340,000 other South Koreans who had been convicted of criminal offences, received a presidential pardon from South Korean president Lee Myung Bak.

This pardon should not have been granted – at least not for business people.

Under the terms of the pardon, which was granted last month on the day marking freedom from Japanese colonialism, the affected individuals will be cleared of their relevant crimes, and will suffer no further punishment in respect of those crimes.

The majority of the crimes involved relatively minor offences, such as traffic related offences. According to my understanding, the pardon for these people was intended principally as a symbolic gesture of national forgiveness.

I see no problem with this – there is too little forgiveness in the world as it is.

But the pardon also covered 74 influential business people, convicted of serious offences such as fraud, bribery, assault and kidnapping (refer article). Along with Mr. Chung, these people included Kim Seung Youn, a tycoon who boasted about how he and his bodyguards physically assaulted staff at a bar after his son was injured in a scuffle. Also pardoned was Chey Tae-won of SK Group, a telecommunications, oil refining and construction conglomerate, convicted in 2003 of illegal share swaps designed to maintain family control of the group.

 
Flawed economics
According to media reports, the inclusion of these men was not merely a symbolic gesture of forgiveness. Instead, it was bought about by a different, and highly flawed, rationale – economic grounds.

From the viewpoint of the government, these people are leaders and entrepreneurs, and their imprisonment was a hindrance to the economy.

I cannot agree. Aside from being unjust, the idea that those who have been convicted of criminal offenses are needed to stimulate the economy simply defies all forms of logic.

On the contrary, the pardon will have a detrimental effect on Korea’s economy, primarily by reinforcing the country’s poor reputation in terms of corporate governance.

 
Reinforcing poor corporate governance
For many years, South Korea has suffered from a poor reputation in relation to corporate governance, which has inhibited the country’s ability to attract investment.

The Korean economy is dominated by chaebols – large corporate conglomerates who wield a considerable degree of political and economic influence. Although shares of many of these entities are listed on the local stock exchange, they are typically controlled by wealthy and well connected families, the behavior of many of which often reflects a negligible degree of corporate accountability and scant regard for issues such as legal compliance, corporate governance or minority shareholder rights. Cases involving practices such as bribery of government officials or stock manipulation are not uncommon.

Why are these practices so common? One reason is that they get away with it. The government has in the past shown a considerable degree of reluctance to hold key business people to account, fearing that heavy handed action would be detrimental to the economy.

But instead, allowing poor governance practices to go unchecked has in itself had a detrimental economic impact. It has created an environment which is not conducive to attracting investment, causing some foreign companies to think twice about job creating investment projects in Korea. It has also inhibited competition in industries where the chaebol are operative, largely to the detriment of consumers.

Dramatic improvements in corporate governance practices are crucial if Korea is to reach its full economic potential, let alone achieve its stated goal of becoming a financial hub within North East Asia.

But corporate governance will not improve as long as criminal behavior goes unpunished.