A mountainous task

WHEN Kim Ki-sik took the helm of South Korea’s Financial Supervisory Service (FSS) on April 2nd, he was supposed to restore credibility to the embattled agency. The co-founder of an influential left-leaning NGO and fierce critic of South Korea’s family-run conglomerates, or chaebol, Mr Kim seemed the ideal candidate to clean up after his predecessor, Choi Heung-sik, who had to quit after just six months when he became embroiled in a nepotism scandal. In the event Mr Kim’s tenure proved even shorter than Mr Choi’s. He resigned on April 16th after it emerged that as an MP he had mishandled political donations and gone on three foreign trips—including cable-car rides in the French ski resort of Chamonix—sponsored by organisations his committee was supervising at the time.

Mr Kim’s downfall is the latest setback for President Moon Jae-in’s ambitious chaebol reforms. Along with Kim Sang-jo, who heads the Fair Trade Commission (FTC), South Korea’s main antitrust body, the disgraced Mr Kim was one of the reforms’ main architects. The blow makes a tough job even tougher.

Earlier this month the FTC reported that the conglomerates had eliminated most of their opaque circular-shareholdings. Firms such as Samsung, Hyundai and Lotte have become fluent in the language of transparency and corporate governance. “Companies have begun to respond to our policy changes,” soothes Kim Sang-jo.

But many of the responses so far appear cosmetic. Fundamentally, observers gripe, the chaebol have not mended their old ways. On April 22nd Cho Yang-ho, chief executive of Hanjin Group, which owns Korean Air, was forced to remove his two daughters from their management positions for being abusive towards employees. One had to leave for the second time, having previously been rehired after spending time in jail for throwing a tantrum in 2014 when a flight attendant served her macadamia nuts in a packet rather than arranged on a plate.

The daughters’ sacking may hint that Hanjin is at last trying to rein in the worst excesses of its executive-suite heirs. Yet few in South Korea believe that. Most think the chaebol are still largely run for the benefit of the founders’ families.

Mr Moon would like to do more. But his minority government is weak. Liberty, the main conservative opposition party, is openly hostile to his efforts and has been blocking legislation to strengthen shareholder rights, force firms to separate industrial and financial businesses and pursue white-collar crime more effectively. That may change after local elections in June, hopes Park Sangin of Seoul National University. “If his party wins big, he might be able to make chaebol reform a top priority.”

Others are less sanguine. Like other presidents before him, Mr Moon has to weigh the benefits of reform with the danger of doing serious damage to the chaebol, which still account for a big chunk of South Korea’s economy, says Sung Taeyoon of Yonsei University. It does not help that economic performance has recently deteriorated. GDP growth is expected to dip below 3% this year. Unemployment is rising; among the young it is close to 12%. That may explain Kim Sang-jo’s emollient tone.

Mr Moon can probably expect less leeway for such pragmatism than his predecessors, given that he ran on a promise of incorruptibility. Every appointee who fails to live up to that exacting standard damages the government’s ability to retain the moral high ground, and with it the chances of reining in corporate wrongdoing.

The FSS is a case in point. When Mr Kim resigned, it had just begun to investigate an incident at Samsung Securities where 2.8bn of its shares were accidentally issued to its employees, some of whom sold them before the error was spotted. The subsequent fall in the broker’s share price hurt other investors, including the state pension fund. The incident caused public outrage at the employees’ alleged profiteering as well as at insufficient safeguards to prevent this kind of thing happening. But the FSS investigation will stall until Mr Kim’s successor is appointed, which could take months. Reforming the chaebol was never going to be easy. And so it is proving.