Nepotism in South Korea
The Korean Air scandal in which Heather Cho, a vice president of the airline and daughter of its chairman, lambasted a crew member for incorrectly serving macadamia nuts not according to manual, and then had the crew member removed from the flight has put the spotlight back on nepotism in corporate South Korea.
The farce has come under heavy scrutiny and public outcry in the country. Since news first broke, the young vice president has rightly stepped down from her position. There really was no other option for her. The scandal has now progressed, and Heather Cho has been arrested after the authorities learned that Korean Air executives and Heather Cho herself allegedly sought to intimidate staff and cover up evidence regarding the incident. With this all in hindsight the question must be asked – should she, or her other siblings, have even been in a position of such power within the company in the first place?
The simple answer is no.
Regardless of the title, it is likely that as the daughter of the chairman she would have had untouchable status within the company. There is no such thing as an outrageous demand concerning the offspring of the chairman of a Korean company. One can only speculate as to what Korean Air staff had encountered before the macadamia incident. The argument could be made that despite the publicity stunt of resigning, it will not affect her power over the staff of her father's company in the future. After all, her title need not have been vice president. She could have held the title of staff, senior manager, or simply just a passenger, and still wielded the exact same power to have made the exact same decisions.
Korean conglomerates, or chaebol, dominate the local corporate landscape and account for a large slice of the country’s GDP pie. These major chaebol, despite being nominally publicly-listed companies, are largely family controlled. Samsung, the most well-known and largest of these chaebol, is currently preparing for the transfer of power to the 45 year old son of current Chairman Lee Kun-hee as he battles health issues.
My former company was also a family-controlled medium-sized chaebol. Although publicly listed, the majority shareholders were all family members. I was privy nepotism directly during my time at the company, as I worked on the same floor and next to the team run by the 30-something, American-educated son of the chairman. At the time he was in the midst of a promotion from team leader to a VP position in which he would be given the responsibility of an overseas subsidiary in New Zealand. This process and quick promotion is quite extraordinary to me, given the very rigid way in which Korean corporations usually promote staff and control salary.
The majority of Korean companies use a remuneration and promotion system based on years of service and age. Workers start out in their late 20s at the staff, or sawon, level and are slowly but surely promoted up the chain. After around 15 years they can expect to be in the position of team leader. There is no climbing or hopping up the corporate ladder in Korea. Simply put, if you do the time you get the reward.
I was surprised not only by the openly unfair process and selection regarding the chairman’s son, but that the Korean staff seemed relatively content with the selection. It soon became apparent that nepotism was a begrudgingly accepted part of Korean corporate culture.
The chairman’s son in my former company was promoted to team leader roughly 10 years ahead of his peers, and then a further 15 years ahead of his peers in the position of vice president. This type of corporate ladder climbing might be somewhat comprehensible under a role-based remuneration system common in western societies, in which outstanding performers are promoted or plucky entrepreneurs run start-ups, but is not achievable for the average white collar Korean worker.
His appointment to the vice president position of the New Zealand subsidiary was particularly uncomfortable for the workers and management of that particular subsidiary. At the time I was responsible for liaising with their office on all human resources matters. Staff in New Zealand were naturally concerned that suddenly their new company director was the 30-something son of the chairman. Some asked, what process did he go through to attain such a position? What experience does he have? What does this mean for our company? Was it a sign of how important the chairmen felt about the New Zealand business, or was he giving his son a plaything to experiment on to be groomed for a bigger job?
Upon his appointment, the new vice president began making changes to management and retrenched a long-serving senior staff member. This was then followed by the New Zealand managing director stepping down from his position. He seemed disillusioned with the powerless predicament he now found himself in, reporting to the son’s owner and seeing one of his long-serving emloyees so easily displaced.
There is the argument that family members, because of the nature of their investment in the business, are naturally more dedicated, and hence nepotism can be a positive force for companies. However, I do not personally share that view. Nepotism can negatively affect the workforce in a variety of ways, and these are slightly more magnified in Korea due to the nature in which employees across industries and age are treated relatively the same. In the aforementioned Korean Air debacle, it is plain to see how the favoritism shown in promotion created a sense of entitlement in family members that led to disrespect for management and other employees.
This favoritism can result in a drop in overall employee morale. Employees, obviously aware of the unfair promotion system and despair at their predicament, will wonder why they should work hard to earn money for this family. While this type of situation is often kept confidential within the company in case it gets unfavorable media attention, the potential fallout can be huge – a drop in ticket sales, highly qualified staff leaving, or new talent looking elsewhere to find a job.
The major issue of corporate nepotism is the quick promotion of family members into important and powerful management positions without qualifications or experience. The negative consequences are that these family members are unqualified to perform their jobs, because they were hired for who they knew and not for their business and managerial acumen. In the case of my former company, the CEO’s son had moved from managing a team of 3 people to overseeing a company of 100 by his early 30s. If he was not up to the task then there could be dire consequences for the business and its 100 employees.
Such appointments also mean that possibly more senior, more qualified employees are overlooked for the position – something which would most likely cause them to question their position in the company and potentially leave – a loss of 20 years of experience and knowledge that would surely cost the company.
For Korean chaebol operating in overseas markets and dealing with international talent, the issue of nepotism will continue to create conflicts with staff, international shareholders, and non-Korean company directors.
To some extent it now seems as though nepotism will come under heavier scrutiny from with Korean society itself. In some respects, as a family run business they are of course entitled to do as they please and appoint their family members to positions of power to ensure their families grip on the immense wealth that it brings. But the Korean Air saga has exposed how nepotism can hurt the reputation of the company and of Korea in international markets and media.
If top management is chosen not by merit but by family connections, then international consumers, and to an extent Korean consumers, will rightly begin to question the service, safety, and standards of Korean companies and, by extension, that of Korea itself.
Michael Kocken is the Australia-based Korea Country Manager for Asia Options. Also, check out his blog, The Sawon.