[Deputy Manager Column] Owner Management and Professional Management & Wallenberg

[Asia Economy Reporter Lim Jeong-su] Domestic conglomerates are facing stronger demands than ever to transition from owner (major shareholder)-centered management systems to professional management systems. This is because public perception of hereditary succession managers has worsened due to a series of corporate failures caused by illegal and irregular gifts and succession processes involving owner families, as well as the owners' arbitrary and overbearing actions. As social consensus on the need for change spreads, there has been a strong societal demand for professional managers, who give a healthier and more professional impression as an alternative to owner management.

However, contrary to the general image, it is difficult to find successful cases of transition to professional management systems in Korea. Companies such as Kia Motors, Korea Electric Wire, Bumyang Shipping, and Daewoo Shipbuilding & Marine Engineering have had painful experiences due to management failures by professional managers. Cases of illegal and illicit activities such as accounting fraud and embezzlement have also emerged.

On the other hand, many leading conglomerates that have maintained owner management systems, such as Samsung, Hyundai Motor, LG, SK, CJ, and Hanwha Group, have grown into global companies. This is the result of founders and successive generations of owners with a sense of ownership making bold investments with a long-term perspective. However, it is difficult to guarantee that owner management continuing through the third and fourth generations will yield good results, or that stable succession will continue seamlessly across generations.

Samsung Group is known to be aiming for a Swedish-style Wallenberg governance structure. The Wallenberg family controls an investment holding company through a public interest foundation, and the investment company has a governance structure that simultaneously controls financial capital such as banks and industrial capital. The family exercises influence over the group through the foundation’s shares and differential voting rights on those shares.

Instead, about 70-80% of the foundation’s profits earned from affiliates are used for public interest projects such as education. This structure widely recognizes the owner’s ownership and management participation in exchange for social return of profits. Applying this to Samsung would require a social grand bargain similar to that in Sweden.

With Samsung giving up on fourth-generation succession, it is expected that other conglomerate owners will face considerable pressure as well. Would socially pressuring them to transition to a professional management system or some similar governance structure solely based on the standards of 'justice' and 'fairness' help efficient corporate growth and enhance corporate value? Unconditional positivity toward professional management systems may cause greater side effects than the drawbacks of owner management.