South Korea political scandal puts corporate decisions on ice

CJ

15/12/2016 11:42

By Hyunjoo Jin and Miyoung Kim 
    SEOUL/SINGAPORE, Dec 15 (Reuters) - Korea Inc is moving in 
slow-motion, mired by the country's political crisis, with a 
vacuum in planning and decision making as corporate giants such 
as Samsung and Lotte delay traditional year-end management 
reshuffles, company insiders say. 
    Last week, the heads of nine of the biggest conglomerates, 
or chaebol, were subjected to an unprecedented 13-hour grilling 
by a parliamentary panel investigating the scandal that led to 
Friday's vote to impeach President Park Geun-hye.  urn:newsml:reuters.com:*:nL4N1E4148 
    While no executives have been charged with wrongdoing, many 
have been questioned by investigators and the offices of the 
Samsung, Lotte and SK groups were raided.  urn:newsml:reuters.com:*:nL4N1DP09X 
 urn:newsml:reuters.com:*:nL4N1DO16B 
    "With no hint on when top management changes will be 
announced, what we are seeing right now is a chain reaction that 
slows down lots of things," said an executive at a key Samsung 
Group unit that makes electronics components, who declined to be 
identified given the sensitivity of the matter. 
    Between them, the nine groups have revenue of 910.5 trillion 
won ($780 billion), equivalent to more than half of South 
Korea's GDP. 
    Executive promotions, an annual ritual at the big 
family-controlled conglomerates that dominate South Korea's 
economy, typically set the stage for new initiatives in the 
coming year, with decision-making tailing off in the weeks 
beforehand. 
    With that period of uncertainty stretching on longer than 
usual, an employee at a Samsung affiliate said staff had been 
occupying themselves reading news reports and surfing the 
corporate intranet. 
    "There is a definite slowdown in day-to-day work as well, 
because companies are holding off on concrete expansionary plans 
or changes," said the person, who declined to be named. 
    The scandal has also sown uncertainty about government 
policies and the economy, coming at an inopportune time for 
companies such as Samsung Electronics Co Ltd  005930.KS  and 
Hyundai Motor Co  005380.KS , which are looking to reverse 
sliding market share in core businesses. 
    Hyundai, which is bracing for its fourth consecutive year of 
annual profit decline, said it was also undecided on whether it 
would announce personnel changes in late December as usual. 
    "The mood is not great and our chairman had a very tough 
time at the parliamentary hearing," said a Hyundai Motor Group 
executive who declined to be named. "It would be fortunate if I 
don't get sacked in these difficult times." 
     
    WHO'S IN, WHO'S OUT? 
    Park has been accused of colluding with long-time friend 
Choi Soon-sil and an aide to pressure big businesses to 
contribute tens of millions of dollars to two foundations set up 
to back presidential initiatives. 
    Samsung Electronics, part of the conglomerate that donated 
20.4 billion won ($17.5 million) to the two foundations - the 
most of any group - has seen delays in setting next year's sales 
targets, a company source said, declining to elaborate.  
    The company has also yet to announce its yearly management 
reshuffle. Samsung traditionally announces executive changes in 
early December, with some investors expecting a major shake-up 
after it was forced to discontinue its fire-prone Galaxy Note 7 
smartphone. 
    It declined to give a timeframe, or to comment on when it 
would announce annual personnel moves. 
    "There's a lot of anxiety," said an employee at Samsung 
Electronics' chip division, who said employees were huddling 
over lunch to discuss rumours of changes that would normally 
have been completed by now. 
    "I am curious to know whether my current boss will stay, or 
I will be moving to another team or not." 
    A Lotte Group spokesman said its annual reshuffle, which 
usually takes place in late December, was likely to be delayed 
to next year because of "various situations". 
    "Our group companies are having more difficulty in setting 
up business plans than usual," the spokesman said. 
     
    "HOLD TIGHT, LOOK BUSY" 
    Friday's impeachment vote means the country's Constitutional 
Court has up to 180 days to uphold or overturn it, setting the 
stage for Park to be the country's first democratically elected 
leader to be ejected from office.  
    Ratings agency Moody's said on Monday that the impeachment 
increased the likelihood that no new policy changes would be 
implemented until a permanent replacement was in office, which 
would weigh on the economy as hiring and investment decisions 
are put off. 
    "The biggest fallout we can expect from this issue, 
economy-wise, is companies hesitating to invest," a Bank of 
Korea official told Reuters, declining to be named. 
    Samsung, which usually announces its annual investment plan 
around late January, told Reuters in a statement that it was 
"currently in the process of making comprehensive plans for next 
year." 
    In 2016, it earmarked a record 27 trillion won ($23 billion) 
of capital spending. 
    South Korea' finance ministry said last week it was 
concerned that "domestic issues" may put more pressure on an 
economy that is grappling with record household debt and weak 
exports, as well as global uncertainties.  
    The Federation of Korean Industries, which represents big 
conglomerates, typically announces annual investment plans by 
the 30 biggest business groups in March, but an official there 
said it was not clear whether it would be able to keep to that 
schedule. 
    "The current crisis is similar to or worse than that of the 
2008 subprime mortgage crisis," he said, also declining to be 
identified. "We are at a standstill." 
    That has left employees "holding tight and trying to keep 
busy" said an official at another Samsung Electronics affiliate. 
    "Many executives eligible for promotion or other reshuffle 
prefer to stay low profile ... you don't want to get unnecessary 
attention," he said. 
 ($1 = 1,166.8000 won) 
 
 (Additional reporting by Christine Kim and Joyce Lee; Editing 
by Tony Munroe and Alex Richardson) 
 ((miyoung.kim@thomsonreuters.com; 65 6870 3026; Reuters 
Messaging: miyoung.kim.thomsonreuters.com@reuters.net)) 
 
Keywords: SOUTHKOREA POLITICS/CHAEBOL