Chaebol
Reforms
Reforms
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Different reforms have been proposed or enacted to deal with the influence, power, and corruption associated with the chaebols, though it has been questioned whether real reform is possible.

### IMF agreement

Under [Kim Dae\-Jung](/wiki/Kim_Dae-jung "Kim Dae-jung") and in the wake of the [1997 Asian financial crisis](/wiki/1997_Asian_financial_crisis "1997 Asian financial crisis"), many reforms were made to the chaebols. Most of these changes pertained to corporate structure, transparency in financial reporting, cuts in government subsidies, corporate governance, and debt stabilization. In 1997, the [IMF](/wiki/International_Monetary_Fund "International Monetary Fund") provided a bailout loan of $60 billion conditional on revision. Distressed financial institutions were to be closed down and those that were deemed viable were to be restructured and recapitalized by the levels it set forth. This affected the chaebol because it severely restricted its easy access to financing which led to over\-leveraged balance sheets. Lenient accounting practices and disclosure rules were to be strengthened and standardized for international practice. Hence, transparency was increased to what would be expected from a public company. The chaebols agreed to be subject to independent auditors and were obligated to provide consolidated financial statements regularly.

### Government\-led reforms and the 2008 crisis

Kim Dae\-Jung enacted what is known as the "Five Principles of Corporate Governance". These were the enhancement of management transparency, strengthening owner\-manager accountability, elimination of cross\-debt guarantees among chaebol affiliates, improvement of capital structures, and consolidation of core business areas. In his plans, debt\-to\-equity ratios was to be below 200%. Chaebol subsidiaries that were debt\-laden or on the verge of bankruptcy were instructed to be either liquidated, sold, or put up for merger. Each chaebol\-holding group had to break up its subsidiaries and operations so that they were more manageable. By the end of 1997, each had an average of 26\.8 subsidiaries. It was hoped that if there were fewer activities, the quality of the remaining businesses would see improvement. Many unrelated branches to their core competencies were swiftly shed. If any of the conglomerates failed to meet the conditions by the set deadlines, strict sanctions would be passed against them. During the [2008 financial crisis](/wiki/Financial_crisis_of_2007%E2%80%932008 "Financial crisis of 2007–2008"), many of these reforms ensured chaebols' quick recovery. Having had exposure to a massive recession before, they learned to cope better than those in foreign countries. With significantly healthier balance sheets and higher cash reserves, the chaebols were able to avoid any liquidity issues. Moreover, with fewer subsidiaries, they were less exposed to the full scope of the crisis and thus helped keep the Korean economy afloat.

President [Roh Moo Hyun](/wiki/Roh_Moo-hyun "Roh Moo-hyun") pushed for even more extensive reform. His administration passed stringent regulations on fraudulent accounting, [stock manipulation](/wiki/Stock_manipulation "Stock manipulation"), and irregular wealth succession. Chaebols were forced to improve objectivity on their board of directors. Rather than having the decision\-makers be insiders, affiliates, or family members, chaebols were expected to hold representation that reflected the interests of investors, especially minority shareholders who gained a significant number of rights. As a result, it became easier for chaebols to raise capital through equity rather than riskier debt. This is because the new transparency laws and restructuring boosted investor confidence from abroad.


What reforms have been proposed or enacted to deal with chaebols?