Management structure Some chaebols are one large
corporation while others have broken up into loosely connected groups of separate companies sharing a common name. Even in the latter case, each is almost always owned, controlled, or managed by the same family group. South Korea's chaebols are often compared with Japan's
keiretsu business groupings, the successors of the pre-war
zaibatsu, but they have some major differences: • Chaebols are still largely controlled by their founding families while
keiretsu are controlled by groups of professional managers. Chaebols, furthermore, are more family-based and family-oriented than their Japanese counterparts. • Chaebols are centralized in ownership while
keiretsu are more decentralized. • Chaebols have more often formed subsidiaries to produce components for exports while large Japanese corporations have mostly switched to employing outside contractors. so the economic problems for which the Japanese have been known are
zombie banks rather than systemic banking crises. However, many of the largest
keiretsu have diversified their debt practices, and public bond sales have become somewhat common. The chaebol model is heavily reliant on a complex system of interlocking ownership. The owner, with the help of family members, family-owned charities, and senior managers from subsidiaries, has to control only three or four public companies, which control other companies that in turn control subsidiaries. A good example of this practice would be the owner of
Doosan, who controlled more than 20 subsidiaries with only minor participation in about 5 companies.
Equity The chairman of a typical chaebol possesses a small portion of the equity in the companies under the large umbrella of the chaebol but is very powerful in making decisions and controls all management. For example, Samsung owns of the group's listed firms. This demonstrates a weakness in the rule of law.
Workplace culture The typical culture of a chaebol is highly paternalistic. Much of the environment is defined by the chairman who acts as a "fatherly figure" to his subordinates. This can be traced back to
Neo-Confucian values that permeate Korean society. A chaebol head's demeanour towards his employee can be described as "loving" while maintaining "sternness and a sense of responsibility". Workers commit to long hours, most notably on weekends and holidays, to appease their superiors. Company outings and drinking sessions tend to be compulsory to foster a sense of family and belonging among employees. Employers believe that enhancing a common bond between them will translate into prosperity and productivity for the company. Other practices that would be uncommon for Western workplaces to engage in include gift-giving to employees and arranging dates for workers in search of relationships or marriage. Chaebols are notoriously hierarchical. As such, it is unusual for an individual to challenge or question the decision-making of his or her boss. This dynamic adds to the culture that orients itself around whoever is in charge but can lead to undesirable circumstances. For example, the
Asiana flight 214 crash led critics to speculate that cultural factors prevented a pilot on board from aborting the low-speed landing and thus straying from his superior's commands. Promotion is rarely merit-based. Rather, it is through the order of age and time served to the conglomerate. This is reflected by the fact that most executives are far older than their employees. If a worker does not attain an executive or senior-management role by the age of fifty, he or she is commonly forced to resign. Again, this is attributable to the age-hierarchy dynamics in Korean Confucian culture. A typical firm heavily emphasizes loyalty to the firm, as demonstrated in the standard recruiting process. Newly acquired employees undergo an intense initiation that includes activities such as training camps and singing company-unique songs that reiterate the production goals of the firm. Many companies that were not in the circle of businesses saw the system as flawed and corrupted. All businesses undertake internal market transactions, which constitute "purchase and sale of intermediate inputs, the provision and receipt of loan collaterals, and the provision and receipt of payment guarantees among member firms in a business group". There is the question of efficiency, especially in production and management. Therefore, the chaebol system was not very transparent. Behind the scenes, businesses were provided with subsidiary financing and intragroup transactions. This allowed them easy loans to cover their deficits, and before the
1997 Asian financial crisis, huge debts had accumulated, many of which were hidden. That gave the illusion that the system was flourishing into the 1990s. South Korea is one of the leading exporters worldwide. Additionally, the majority of investors in the Korean stock market are foreign investors. Out of 711 listed companies in the Korean stock market, approximately 683 have shares that are held by foreign investors. Nearly a third of the market's value is owned by foreigners, a trend that is expected to continue. Because of their major role in the Korean stock market, foreign investors play a massive part in whether or not chaebol conglomerates remain financially successful. Foreign investors tend to avoid chaebols, especially those that displayed heavy political influence in South Korea, like Samsung and Hyundai. Investors are reluctant to invest in large control-ownership disparity businesses because these companies tended to cheat shareholders to have higher personal financial gain. As of January 2025, many Chaebol corporations have a high share of foreign investors, with Samsung Electronics at , Hyundai Motors at , Nonetheless, chaebols are still able to survive, highlighting just how much power and aid they receive from the Korean government.
"Too big to fail" During the
1997 Asian financial crisis, bankers feared that chaebols would go bankrupt so they allowed these businesses to roll over their loans each time they were unable to repay their debts. Many did not believe that the chaebols were capable of collapsing and that the more they borrowed, the safer they were. However, the theory was proven wrong when many businesses collapsed during the crisis. Since they were linked through debt guarantees, many of the companies fell into a chain reaction. Since the crisis, chaebols had less debt and were less vulnerable to similar crises, as was demonstrated in the 2008 crisis. With the growth of the fewer remaining chaebols, however, each of them occupies a larger portion of the economy, with the largest chaebols making up (by sales revenue) a substantial portion of South Korea's GDP.
Monopolistic behavior The
protectionist policies and
preferable government treatment granted chaebols the ability to exhibit monopolistic behaviour. The absence of a market free of intervention meant that "true competition" became a rarity in South Korea. Especially in the era before the
1997 Asian financial crisis, the only products available to the Korean people were those made by chaebols. Therefore, the social fabric of the country lacked a welcoming culture toward entrepreneurship. The intensity and extent of market concentration became evident as of the country's GDP is derived from chaebols. The largest of the group, Samsung, exports of South Korea's goods and services alone. Although no longer financially supported by the government, these firms have attained
economies of scale on such a massive level that it is extremely difficult for a startup or small or medium enterprise (SME) to surmount the high barriers to entry. A majority of these smaller companies ended up becoming acquired by the chaebols, thereby further stacking their size and economic dominance. During recent years a growing trend to scale globally has increased among aspiring Korean entrepreneurs. Conversely, chaebols have also been moving money abroad with the tacit endorsement of the South Korean government and investing in commercial enterprises, particularly in
Koreatown Manhattan,
New York City. To this day, chaebols maintain dominance across all industries. Reductions in
tariffs and the removal of trade regulations designed to protect Korean conglomerates have led to increased competition from abroad. However, among domestic firms, chaebols have kept their market share intact. Most notably,
Apple's entry into the smartphone market pressured rival Samsung into diversifying its revenue streams from overseas. All but 3 of the top 50 firms listed on the
Korean Stock Exchange are designated as chaebols, Consequently, chaebols have more bargaining power and often take pricing action that squeezes both suppliers and consumers. Typically the firms down the supply chain fail to increase their profit margins enough to expand and thus never see growth. Collusion among chaebols is commonplace.
Price-fixing acts mean consumers expect to pay an inflated value for most goods and services.
Government ties, corruption, and abuse of power at a breakfast meeting with business magnates
Lee Kun-hee and
Chung Mong-koo Since the inception of the chaebol, the government has been closely involved in its affairs. Many of the reforms enacted over the years, especially those under President
Kim Dae-Jung, have cracked down on kickbacks and preferential treatment. Moreover, the state is no longer a majority shareholder of any chaebol. Samsung's leader is not the only chaebol chairman to be excused from a criminal conviction.
Choi Tae-Won of
SK Group,
Chung Mong-Koo of
Hyundai, Kim Seung-Youn of Hanwha, and
Shin Dong-bin of Lotte are a few examples of chairmen who have been charged, convicted, or are currently serving a prison sentence for white-collar crime. Accusations include bribery, tax evasion, accounting fraud, embezzlement, and violent crime. Typically chaebol chairmen are pardoned of any crimes. In the rare case that an executive is sentenced to prison, as the CEOs of SK and CJ Group were, it is typically a relatively light punishment of up to 4 years depending on the charge. Collusion between chaebol members and the government granted preferential statuses to the companies. A chaebol would funnel bribes to politicians and bureaucrats through slush funds and illegal donations. This could help maintain the government's position of power, allowing them to secure contracts for major government projects and provide favourable treatment to the donor firm. Examples of this type of corruption were widespread in the years leading up to the 1997 Asian financial crisis. Many of the firms that benefited from this relationship were too indebted, had poor corporate governance, and were inefficient. There was a huge inflow of capital and a bending of regulation in favour of these problematic firms. For example, in the 1990s, Hanbo Group, formerly South Korea's second-largest steel-maker, paid for special arrangements with high-ranking politicians so that it could secure contracts for large government projects over its competitors. Hanbo went bankrupt in 1997 after defaulting on debt payments along with other governance issues. Numerous chaebol companies had similar private agreements with the government in this fashion. It would be most common in companies dealing with heavy industries or projects that involved government procurement and urban planning. In the past, most successful political elections were won with chaebol support. Each time a new administration or regime stepped in, it would gear its policy platform towards chaebol revitalization. This was under the claim that to be a competitive economy more power must be given to the chaebols. In recent years, the leading political parties of South Korea have shifted their focus from supporting large corporations to promoting economic diversification. == Reforms ==