South Koreans Criticize Family-Run Businesses

In Global Perspectives, Maps101 by

Korean Air Lines is an example of a family-run South Korean business called a chaebol. Recent news about the airline’s executives has led some Koreans to conclude that chaebols are more interested in protecting family members than in pursuing good business practices.

It started with a bag of nuts.

Cho Hyun-ah, also known by the English name Heather Cho, was an executive with Korean Air Lines. In December 2014 Cho was flying from New York City to South Korea. Cho, while sitting in the plane’s first-class section, was served a bag of nuts. Cho flew into a rage because the nuts had not been served to her on a plate. She threw items at members of the flight crew and insulted them. She ordered flight attendants to kneel and beg for her forgiveness. Eventually, Cho ordered the plane back to the gate so that Park Chang-jin, the chief steward, could be removed from the flight. Park remarked that Cho treated the airplane’s crew like “feudal slaves.”

The incident, which was humorously dubbed an example of nut rage by the South Korean press, landed Heather Cho in a South Korean courtroom. The judge ruled that Cho had violated aviation law by changing a flight plan and interfering with airline operations. Evidence was also presented that Cho’s family had tried to cover up the incident. The judge sentenced Cho to one-year in jail, of which she served three months.

To some, Heather Cho’s outburst reflects a larger problem in South Korean society. Most of South Korea’s largest businesses, called chaebols, are run by wealthy families. Many feel that the only reason why Cho had such an important position with Korean Air Lines is that her father, Cho Yango-ho, is the airline’s chair. Chaebols, critics say, are more concerned about their family members than in good business practices.

Senior and Junior Workers

This week, nut rage is once again front page news in South Korea. Media outlets reported that Heather Cho’s younger sister, Cho Hyun-min, also a Korean Airlines executive, splashed water in the face of an advertising executive. Cho, who uses the English name Emily Cho, insists that she did not splash her colleague, although she did admit that she had shoved him. Police are investigating these claims.

In response, frustrated South Koreans are submitting petitions on the country’s presidential website demanding that Emily Cho be punished for her behavior. For many South Koreans, ill-treatment by senior workers is a common problem. The Korea Herald reported on April 18 that a recent survey found that 97 percent of South Korean workers have witnessed senior workers abusing junior workers. The Korean word for this treatment is gapjil. Gapjil is when senior workers show arrogant or authoritarian attitudes towards junior workers.

On April 22,  Cho Yang-ho announced that because of their behavior, his two daughters would be stripped of their positions. “I sincerely apologize for upsetting the general public and employees at Korean Air over issues related to members of my family,” the Korean Air Lines chief said.

However, many question whether the two executives’ firings will make any difference in South Korea’s family-dominated economy.

The Rise of Chaebol

Chaebol is the English version of the Korean word jaebeol. Jae- means “weath or property,” while –beol means “clan.” A chaebol is a group of interconnected companies that is usually controlled by one family. LG, Samsung, and Hyundai, are three companies familiar to most Americans. They are also chaebols. However, these companies are often larger than American consumers realize. In the U.S., Korean company LG is mainly known for televisions and smartphones. However, LG also makes chemicals and fertilizer, and owns several Korean sports teams as well. Thus its reach in South Korea is especially far.

Chaebols arose after the end of the Korean War, in 1953. That war had left its participants, South Korea and North Korea, in ruins. In order to improve South Korea’s economy, the government agreed to provide money and loans to companies who promised to rebuild the country. The government also passed laws protecting industries from foreign competition. With the help of chaebols, South Korea grew into an important economic power.

In 1960, both South Korea and North Korea suffered from widespread poverty. However, nearly 60 years later, South Korea has showed much more economic growth than its neighbor to the north. Today, South Korea has a per-capita income that is more than 20 times that of North Korea. In 1970, the average South Korean per-capita income was 10 percent of that of the average American worker. Today, that percentage has grown to 70 percent.

Despite their original benefit to the country’s economy, eventually, many South Koreans became critical of chaebols. They complained that money meant for average Koreans often ended up in the hands of wealthy families. The government also supported chaebols by suppressing workers’ rights movements. Unfortunately, as the chaebols grew without fear of failure or overseas competition, they also became corrupt, according to critics.

After the Asian financial crisis of the late 1990s, many South Koreans became especially concerned about the chaebol system.  Since a single chaebol often owned many companies in different industries, if that chaebol failed, it could affect jobs and commerce across multiple industries. Today, Korea’s Fair Trade Commission says that there are 45 companies in South Korea that fit the definition of a chaebol. It is estimated that the top ten chaebols own more than 27 percent of all business assets in South Korea.

This political cartoon reflects the concern some South Koreans have with enormous family-run companies called chaebols. The arms of the octopus reflect the fact that one chaebol often owns many companies across several industries. A government official turns her back both to workers, who struggle with high unemployment, and to small businesses, who often carry large debts.

Trying to Change the System

Today, many South Koreans think that chaebols have too much power over their government. When South Korean President Moon Jae-in came to power last year, it was on the promise of sweeping chaebol reform. 

Even with Moon’s election, it seemed that chaebol reform would be slow in coming. Samsung’s top executive, Jay Y. Lee, was sentenced to five years in prison for bribery. His conviction was part of a scandal that also ended the term of previous South Korean president Park Geun-hye. Earlier this month, the former president was sentenced to 24 years in prison on corruption charges. However, Lee appealed his conviction. Last February, a panel of judges freed him after reducing and suspending his sentence. Many South Koreans were outraged. In the past, many business leaders, including Lee’s father, were convicted for corruption only to be cleared by South Korean courts. 

Heather and Emily Cho have come to symbolize the corruption in the chaebol system. Sadly, the Cho family’s problems seem likely to increase. The Korea Customs Service is now investigating whether some of its own workers collaborated with Korean Air Line workers to illegally smuggle items into the country. Evidence is growing that members of the Cho family brought luxury items into the country without paying legally required taxes, called duties.

Customs officials recently raided Korean Air Line’s headquarters as well as the homes of Cho family members to look for evidence of smuggling. If convicted, they could face a maximum five years in prison and fines up to ten times the original amount of the duties required. The Korean Customs Service also opened an online chatroom to allow workers to anonymously report wrongdoing by Korean Air Lines. However, workers have been reluctant to come forward because they fear their jobs could be affected if they do.

“No one gave us decisive evidence in the chat room, and people who tipped us off did not come forward with real details,” said Ryoo Ha-sun, an official at the Korea Customs Service.

A recent editorial in the Korea Times reflects the frustration many feel about chaebols and their poor business practices.  Cho Yango-ho, the editorial argued, needs to replace his family members with professional executives better suited to managing an important company.

“Korean Air is a national flag carrier. It should do its best to live up to the honor of using the name of ‘Korea,'” the Korea Times editorial concluded. “It should not become an object of international ridicule and criticism anymore. The Cho family scandal is a good chance for the airline to be reborn.”

Additional Resources

Read more about how Heather and Emily Cho’s behavior caused them to lose their positions with Korean Air Lines at the New York Times and CNN.

Learn more about chaebols in South Korea at Reuters and the Foreign Policy.

See images of South Korea at National Geographic and Visit Korea.

Images and Sources

Korean Air Lines photo: byeangel
Korean Air Lines photo license: Creative Commons 2.0

Chaebol political cartoon: David D. Y. Choi
Chaebol political cartoon license: Creative Commons 4.0