[Disabled Wings Public Interest Corporations] Public Interest Activities 'Stumble'... Public Interest Foundations Only Growing in Size

When Assets Increase by 3.6 Trillion, Public Project Costs Rise by 1.2 Trillion
Significant Portion of Assets Are Affiliate Shares... Also Used in Governance Structure

While the total assets of public interest foundations managed by major domestic conglomerates have increased by more than 3.6 trillion KRW over the past four years, the expenses for public interest projects have only increased by 1.2 trillion KRW. Compared to the pace of asset growth, the expansion of public interest project scale was somewhat slower. The proportion of related company stocks in the assets of public interest foundations and the number of companies also showed an increasing trend. This has led to criticism that the focus was more on growing in size rather than increasing public interest activities.

Assets increased more than three times compared to public interest project expenses

On the 3rd, Asia Economy conducted a full survey of the financial statements submitted to the National Tax Service by 41 public interest foundations affiliated with the top 30 domestic groups. As of last year, their total assets were recorded at 18.2988 trillion KRW. The assets have increased every year, rising by more than 3.6 trillion KRW compared to 2019. This is more than three times the increase in distribution expenses of 1.1953 trillion KRW during the same period. Distribution expenses refer to costs incurred for public interest projects, including scholarships and grants directly paid to beneficiaries or beneficiary organizations.

In some cases, the increase in distribution expenses has not only slowed but even decreased. The Daelim Suam Scholarship and Cultural Foundation of DL Group saw its total assets grow from 24.3 billion KRW to 29.3 billion KRW between 2019 and 2023, a 1.2-fold increase, but the expenses for public interest projects shrank nearly by half, from 684.61 million KRW to 354.44 million KRW. Meanwhile, surplus funds increased 1.6 times to 8.2 billion KRW as of last year.

Similarly, the POSCO Education Foundation (-46.6%), Hanjin Group's Ilwoo Foundation (-31.8%), and CJ Nanum Foundation (-29.3%) also experienced relatively large decreases in distribution expenses. In the case of SM Group's Phil Medical Foundation, expenses for public interest projects were recorded as zero every year from 2019 to 2023. Although a decrease in distribution expenses does not necessarily equate to a decline in public interest activities, the sustained downward trend is considered significant.

A significant portion of assets are affiliate shares... also used in governance structures

The top 30 group public interest foundations have increased their holdings of affiliate shares, raising the proportion of stocks in their assets. This has led to criticism that these are being used indirectly in conglomerate governance structures. The controlling family establishes the foundation with tax benefits, takes positions such as chairman, and exerts control, or the shares held flow into companies funded by the second generation of the controlling family. In fact, among the 41 public interest foundations affiliated with the top 30 groups, 15 have owners or family members serving as chairman or directors.

The proportion of stocks in the total assets of the 41 public interest foundations affiliated with the top 30 groups was 38.09%. This is about five times higher than the average stock asset ratio of all domestic public interest foundations. Most of these shares were stocks of affiliates. Among the 219 companies in which these 41 foundations held shares, 107 companies, or 48.9%, were related affiliates. Although this was less than half in terms of the number of companies, it accounted for an absolute portion in terms of assets. Affiliate stock assets exceeded 90% of total stock assets.

Among the public interest foundations affiliated with the top 30 groups, the SM Group’s Samra Hope Foundation had the highest proportion of affiliate shares in total assets. It held 18.87% of Samra, a core affiliate in the group’s governance structure, 8.71% of Dong-A Construction Industry, and 3.91% of SM Steel. The chairman is Woo Yeon-ah, the eldest daughter of Woo Oh-hyun, chairman of SM Group, and CEO of Samra Farm.

Samsung Group’s Samsung Welfare Foundation also had affiliate shares accounting for 90.36% of its total assets. As of the end of last year, the foundation held shares worth 487.6 billion KRW in affiliates such as Samsung SDI (0.25%), Samsung C&T Corporation (0.04%), Samsung Electronics (0.08%), and Samsung Fire & Marine Insurance (0.36%). The foundation’s chairman is Lee Seo-hyun, president of Samsung C&T Corporation. Other foundations with high proportions of affiliate stock assets include Kakao Brian Impact (79.64%), Hanjin Group’s Jungseok Logistics Academic Foundation (79.5%), Daelim Cultural Foundation (74.35%), and CJ Nanum Foundation (70.85%).

Meanwhile, although the proportion of stocks in assets increased, donations from affiliates decreased. According to the corporate analysis firm Leaders Index, donations received by public interest foundations affiliated with the top 30 groups fell by 10.1%, from 251.8 billion KRW in 2017 to 226.3 billion KRW last year. Donations from affiliates decreased even more sharply, dropping 29.4% from 239.3 billion KRW to 168.8 billion KRW during the same period. Consequently, the share of affiliate donations in total donations fell from 95.0% in 2017 to 74.6% last year.

When affiliate shares are contributed to foundations, the controlling shareholder’s influence can ultimately strengthen. Even if voting rights exist, they generally do not oppose the group’s overall stance, and even if voting rights are limited, the controlling shareholder’s influence can grow. Professor Lee Chang-min of Hanyang University’s Department of Business Administration said, "Originally, receiving shares as contributions means to sell those shares to use the proceeds as resources or to supplement the budget with dividend income. Not utilizing them for such purposes and simply holding assets like stocks is a significant opportunity cost and inefficient."