Samsung Ejected Critic Tapped to Be Korea's Top Business Cop

(Bloomberg) -- Samsung Electronics Co.’s security guards once dragged a bespectacled professor out of the building after he heckled the chief executive officer for not doing anything when the chairman was accused of making illegal political donations.

Thirteen years later, the professor -- Kim Sang-jo -- has the backing of South Korea’s new leader to hold the biggest conglomerates accountable in what may trigger significant changes for Samsung, Hyundai, Lotte and the other chaebol dominating the economy.

The fiery 54-year-old Kim was named by President Moon Jae-in to run the Fair Trade Commission, a government agency and quasi-judicial body that sets policies and makes decisions on cases related to fair competition. If Kim’s nomination is approved, the office most responsible for regulating the conglomerates would be directed by their most high-profile antagonist.

“The reason why there needs to be chaebol reform is because the country’s corporate ecosystem has become distorted and the fair order disrupted by the governance structure of the chaebol,” Kim said Thursday. “The Korean economy has changed significantly from the past and, considering this, I will find a way to implement sustainable reform.”

President’s Man

Kim is wasting no time getting started on his plans for change. He pledged during Thursday’s news conference to strengthen the FTC’s authority and enlarge its size, saying improving corporate governance and other reforms are a necessary part of Moon’s promised job-creation campaign. Samsung Electronics shares fell as much as 2.7 percent Friday to their lowest in three weeks, as the benchmark Kospi was little changed.

The president, who rode into office railing against the scandal-plagued business groups, pledged to add 500,000 new jobs in the private sector. Kim, an economics professor at Hansung University in Seoul, advised Moon during his campaign.

“Kim is expected to strengthen surveillance and policies to improve transparency in big companies,” said Lee Kyung-sang, executive director at the Korea Chamber of Commerce & Industry, a trade group representing local businesses. “And Korean companies are ready for those changes as they have experienced the mood against chaebol recently.”

Ten of the biggest conglomerates own more than a quarter of all business assets in South Korea, and five of the biggest account for half of the Korean benchmark stock index.

Spokesmen for Samsung Electronics, Hyundai Motor Co., LG Electronics Inc. and SK Group all declined to comment when asked about Kim’s nomination to oversee the conglomerates.

Moon pledged during his campaign to boost economic growth by reducing the grip that the sprawling conglomerates have on Asia’s fourth-largest economy, controlling companies that dominate the auto, electronics, retail and shipbuilding industries. In his May 10 inaugural speech, Moon reaffirmed his intention to get tough on the chaebol, vowing to cut ties between the government and business groups.

Before he was elected, his political party couldn’t generate enough support for legislation that would have limited the power held by the handful of rich families behind the empires. Now that Moon runs the government after predecessor Park Geun-hye was impeached, he can issue executive orders and bypass parliamentary resistance.

“It’s certainly not a favorable environment for Samsung and the chaebol,” said Park Ju-gun, president of Seoul-based corporate watchdog CEOScore.

Clashing With Samsung

One of Kim’s targets is the most powerful group of all -- Samsung. Its de facto leader, Jay Y. Lee, remains in custody after being indicted this year in the influence-peddling scandal that brought down Park.

Kim was an civic activist when he attended Samsung’s Feb. 27, 2004, shareholder meeting. He displayed a chart of the company’s code of ethics and repeatedly challenged then-CEO Yun Jong-yong to take actions against Chairman Lee Kun-hee, father of Jay Y. Lee, and other officials for their alleged involvement in an illegal donations scandal. The elder Lee later was cleared by prosecutors.

“Keep your voice down!” Yun scolded Kim, according to a complaint filed by Kim’s group. “Why are you making noise at the shareholders’ meeting?”

Kim responded that he was a shareholder, and that Yun worked for the shareholders. “We are owners! You are our proxy!”

Dragged Out

The argument escalated, and Kim was eventually dragged out of the building by security guards. Kim and four other group members filed a complaint against Samsung Electronics and Yun, and Samsung was later ordered to pay them a total of 10 million won ($8,900).

After Lee Kun-hee avoided prison in 2009, when he was convicted of breach of duty in a separate criminal case, Kim called the suspended sentence “disappointing.”

Later that year, after Jay Y. Lee became executive vice-president and chief operating officer of Samsung Electronics, the world’s biggest maker of smartphones, Kim said the younger Lee didn’t deserve those jobs.

“I don’t think he has learned enough to get promoted,” said Kim, who also was a fellow at Yale University.

Kim continued the pressure this year as special prosecutor Park Young-soo, whom the local media nicknamed the “Grim Reaper,” investigated the former president and Jay Y. Lee for their alleged roles in a corruption scheme. Samsung, the younger Lee and the former president have denied the allegations.

The prosecutor’s first request to obtain an arrest warrant for Lee was rejected by a court. His office then consulted with Kim before seeking another warrant, said Jong-sung You, a senior lecturer at Australian National University’s College of Asia & the Pacific who has known Kim for about 10 years.

The second request for a warrant was approved.

“He is the best expert on the issue, on the corporate governance of the chaebol,” You said. “He’s perfectly pro-market.”

--With assistance from Hooyeon Kim

To contact the reporters on this story: Sohee Kim in Seoul at skim847@bloomberg.net, Sam Kim in Seoul at skim609@bloomberg.net, Bruce Einhorn in Hong Kong at beinhorn1@bloomberg.net.

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net, Robert Fenner at rfenner@bloomberg.net, Michael Tighe, Young-Sam Cho