[Opinion] Is It Appropriate to Apply 1980s Chaebol Standards to Global Startups?

The biggest point of interest in this week’s announcement by the Korea Fair Trade Commission (KFTC) regarding large business groups is whether Kim Beom-seok, the founder and chairman of the board of the online platform Coupang, will be designated as the same person (dong-il-in) or if the company itself will be designated. If designated as a large business group, Coupang would be subject to regulations such as circular shareholding, preferential treatment of affiliated companies, and holding company rules. Furthermore, if Kim Beom-seok is named as the chaebol head, the core target of government chaebol regulations, intensified monitoring will follow. The same person must disclose all transactions with spouses, relatives within six degrees of blood relation, and relatives within four degrees of affinity.

The KFTC reportedly intended to designate Coupang as a business group without naming a chaebol head, since Chairman Kim is an American citizen. However, when the Citizens’ Coalition for Economic Justice questioned the legal basis for not designating a foreigner as the same person earlier this month, the KFTC hesitated and reopened discussions.

In fact, whether to apply the same person system to foreigners is a minor issue. The more fundamental question is whether the same person system, introduced in 1986, is still useful. If the chaebol regulations, which were unprecedented worldwide and introduced during a time when chaebol abuses were frequently reported and prosecuted, were effective, then the law should have been properly updated. As KAIST Professor Lee Byung-tae pointed out, “Old regulations are clipping the wings of the Fourth Industrial Revolution.” The essence of regulation must change to accommodate the emergence of IT and platform companies.

Should a young startup founder like Chairman Kim of Coupang be viewed on the same level as traditional chaebol heads? Common sense tells us no. Nowadays, young entrepreneurs do not run family businesses by mobilizing relatives as past chaebols did. Transparency in society has increased, and various stakeholders such as investors and financial supervisory agencies have mechanisms to appropriately check managerial overreach. Moreover, founders themselves have no incentive to do anything that would reduce corporate value. Succession of management rights is practically impossible. Currently, Chairman Kim’s voting rights are enabled by Class B shares that carry 29 votes per share. However, upon inheritance or gift, these shares revert to one vote per share. In other words, management succession through inheritance, gifting, or sale is impossible.

Another issue is that if Kim is designated as the same person, Coupang Inc.’s subsidiaries, Coupang USA and Coupang Asia, would also be designated as large business groups and subject to KFTC regulations. This would allow investigations into transactions, investments, and general dealings among Coupang’s overseas subsidiaries, severely hindering global management. While companies like Amazon and Alibaba freely invest and merge in overseas markets including Southeast Asia, Coupang could face demands for documents or sanctions from the KFTC regarding such activities, forcing compliance.

The KFTC has never designated a foreigner as the same person. For example, the largest shareholder of the oil company S-Oil is Saudi Aramco, a Saudi Arabian state-owned company wholly owned by the Saudi royal family. It is impossible for the KFTC to designate the King of Saudi Arabia as the same person and regulate him like a domestic chaebol head. This would only reinforce the perception that “Korea is a difficult country to do business in.” Therefore, S-Oil is regulated by designating the corporation as the same person.

This opportunity should be used to thoroughly review the definition of the same person, which is not in the Commercial Act but appears in various laws, as well as the legal basis for designation. As chaebol inheritance continues and shareholding ratios dilute, the targets and goals of regulation must also change. Former KFTC Chairman Kim Sang-jo, who vowed to “discipline the chaebols,” acknowledged the need for improvement, but it remained mere words.

The KFTC is fully aware of the problems now. Are they enjoying the current system and unwilling to change it, or are they unable to change it due to a lack of sensitivity to future industrial organization and global standards? The KFTC’s most important mission is to protect and promote healthy competition among companies within the market economy. Rather than treating new-generation companies like Coupang as past chaebols, the KFTC’s fundamental role should be to help them activate market competition.

Hong Kwon-hee, Visiting Professor, Global Talent Department, Yonsei University