The transformation into holding company system and its problems : The case of SK Chaebol
Authors:   Asia-Europe Perspective Association, Song Wonkeun 
Published: June 2018

Korean Chaebol groups have groped for some changes in corporate governance system in their own ways since the Foreign exchange and financial crisis in 1998. Out of these changes, it has been remarkable to trying to transform current corporate ownership structure complicated by circular-type investments between affiliates into holding company system. A holding company could be a effective way to reform corporate governance system of Chaebol that have a complicate ownership structure by circular-type investments among group affiliates. It has been well known that holding company have some merits in reforming the Korean Chaebol system. Firstly, it could lesson a distortion of ownership structure of the companies included in Chaebol groups by making their ownership structure transparent and simple. Secondly, it would be a effective way to relax rigidities in company work-out processes. Thirdly, monitoring over business management could be easier than before by making relationships(or rights and duties) between shareholders of holding companies and those of their son affiliates clear.
In this respect, government admitted the holding company with some strict regulations in 1999. But the economic concentrations of the economy have been intensified due to numerous relaxations of relevant regulations during the Lee Myoung-Bak government. Besides the so called 'successful' transformations into holding company system of LG Chaebol, SK, GS, Hanjin, Hanwha, CJ, LS, Doosan, Kolon, Dongbu, Booyoung and Taekwang group have completed this transformation. Nevertheless, the transformation process and their effects have many fundamental flaws in considering that it didn't weaken strong control powers of dominant ruler in the Chaebol system.
The holding company named SK holdings Co. is one of the largest companies among seven holding companies that newly established by way of allocation of treasury stocks, spinoff-type corporate division and swapping stocks. Also SK Chaebol records as lowest rate of share-ownerships of dominant rulers(Tae-won Choi and his relatives) among other large conglomerates or Chaebols. The group president, Tae-won Choi controls group via SK C&C Co. which is not enrolled into the SK holding company system.
In these respects, this article firstly reviews changes in government policies on the regulations to the holding company since 1999 and evaluates such policy effects. On the basis of such evaluations, we aretrying to check out the procedures and results of transformation in SK Chaebol. The main problems of this transformation of SK Chaebol is that dominant ruler, Tae-Won Choi, has maintained and expanded his controlling powers without any additional equity investment or expense. It could be possible by stock swapping after spin-off as one way of transforming into holding company system. The second point to address is domination over group's holding company(in this case, SK Co.) by outside of holding company system. Tae-Won Choi, group's dominant ruler, dominates SK C&C Co. and this de facto affiliate dominates SK Co. This second problem resulted in has brought another serious drawback so called 'tuneling', in other words wealth transferring from several affiliates to this de facto affiliate company whose dominant share is held by group controller.
The provisional conclusions from this analysis are as follows; 1) It is necessary to require reconsiderations on holding company system as an effective way to reform the Chaebol ownership structure. The states of art shows that holding company system legitimately admits group rulers' excessive controlling powers being mismatched to their share-ownerships. 2) If it could not be possible to readdress to this issue, some practical ways to strengthen such regulations on holding company as upper bounds on debt-ratio, lower bounds on share requirements to the son and grandson affiliates would be devised.