[THE INVESTOR] South Korean conglomerates are on high alert following the proposal of a bill limiting the voting rights of their shares in affiliated public goods corporations.

This could be a major blow to the large industrial groups since many of them maintain their control over key affiliates via such corporations.

“These public interest corporations have not spent a dime on promoting public interest. Their sole purpose is to perpetuate the current ownership structure of the chaebol,” said Kim Woo-chan, head of the Economic Reform Research Institute. 

He cited the think tank’s survey showing that between 2009 and 2013, none of the public interest corporations affiliated with the country’s top industrial groups actually spent money for public interest.

In fact, these so-called CSR (corporate social responsibility) firms are actually anti-beneficial for the public, according to Kim.

“In return for being classified as public interest firms, they get significant tax breaks. If these firms had actually paid these taxes, it could have been used for better purposes,” he said. 

Kim also pointed out that because the founding families can control affiliates through their CSR operations, they are also dodging inheritance taxes. 

"If the second and third generation of the owner families legally sought control, they would have to pay a staggering amount of inheritance taxes," he said.

According to a recent survey by the institute, 71 percent of the country’s large industrial groups controlled other affiliates through public interest corporations.
Samsung Group (chairman Lee Kun-hee) holds stakes in six different affiliates via three public interest firms under Samsung Foundation.

These firms together hold a 6.86 percent stake in Samsung Life. Samsung Life is a key player in Samsung’s corporate governance structure -- it holds a 7.75 percent stake in Samsung Electronics. The amount is the largest held by a single shareholder.

This means the voting rights exercised by Samsung Foundation are directly linked to Samsung’s ownership structure.