During Moon Administration's 4 Years, Large Corporations' 'Circular Shareholding Chains' Reduced from 282 to 16 and 'Internal Transaction Ratio' from 35% to 16%

Joint Announcement of Key Achievements in Fair Economy by Relevant Ministries

[Sejong=Asia Economy Reporter Joo Sang-don] Over the past four years, the number of circular shareholding rings among large corporations has sharply decreased from 282 to 16. The proportion of internal transactions in companies where the controlling family holds 100% of shares also dropped from 35% to 16%. The government evaluated these results as the outcome of various fair economy-related policies implemented over the past four years.

On the 11th, the government announced the results of fair economy promotion through a joint effort of related ministries. A government official stated, "Significant achievements have been made not only for economically vulnerable groups such as small and medium-sized enterprises (SMEs), small business owners, workers, and consumers but also for large corporations," adding, "There have been improvements in the soundness of large corporations' management, and large corporations are voluntarily improving governance and internal transaction practices."

◆ Large Corporations Show Clear Improvements in Voluntary Governance and Internal Transaction Practices = First, circular shareholding rings, which are considered an illicit means allowing controlling families to expand their control through fictitious capital, have been resolved. According to the disclosure target business group standards, the number of circular shareholding rings decreased from 282 in 2017 to 16 in 2020. The amount of debt guarantees among affiliated companies within business groups restricted from mutual shareholding also declined from 257 billion KRW in 2017 to 86.4 billion KRW in 2020.

The proportion of internal transactions is also showing a downward trend. For companies where the controlling family holds 100% of shares, the internal transaction ratio decreased by 18.3 percentage points from 34.6% in 2015 to 16.3% in 2019. For companies with a shareholding ratio of 50% or more, it dropped by 5.1 percentage points from 16.5% to 11.4% during the same period.

On the other hand, the proportion of companies within disclosure target business groups that have established internal transaction committees within their boards to independently review internal transactions increased by 4.7 percentage points from 35.5% in 2017 to 40.2% in 2020.

◆ Expansion of Direct Payment System for Subcontracting and Strengthening of Contract Renewal Rights = The government has sequentially implemented policies such as the 2017 "Comprehensive Measures for Fair Subcontracting Transactions" and "Measures to Prevent Technology Misappropriation," followed by the 2019 "Measures to Improve Large and Small Business Transaction Practices and Promote Win-Win Cooperation" to establish fair trade order and promote mutual cooperation between large and small businesses. As a result, the utilization of the "Subcontracting Keeper," which electronically manages payment statuses to prevent delayed subcontract payments, by public institutions increased approximately 4.4 times from 9.8 trillion KRW in 2017 to 43.4 trillion KRW in 2020. The amount of win-win payments increased by about 28%, from 93.6 trillion KRW in 2017 to 119.8 trillion KRW in 2020, due to tax benefits linked to win-win payment performance and incorporation into public institution evaluations. Additionally, through the Unfair Subcontracting Reporting Center and the Fair Trade Mediation Agency, subcontractors were able to receive a total of 796.8 billion KRW in unpaid payments from 2017 to 2020.

The number of companies participating in fair trade agreements is also increasing. Participating companies rose from 229 in 2017 to 343 in 2020, and beneficiary companies nearly doubled from 41,653 to 80,311 during the same period. Over this time, large corporations supported their small and medium-sized partners with a total of 21.2723 trillion KRW through free funding and low-interest loans.

The transactional status of small business owners has also been strengthened. Considering that franchise stores operating for over 10 years are not covered by the contract renewal request right under the Franchise Transaction Act, the government established a "Contract Renewal Guideline" to enable contract renewals for long-term franchise stores as well. As of March this year, a total of 6,135 franchise stores in convenience store and bakery industries benefited through agreements with their franchisors. Furthermore, when franchise stores close prematurely due to sales falling below the initially projected sales by the franchisor, they are exempt from penalty fees. As a result, the proportion of closed stores charged penalty fees decreased by 3.8 percentage points from 13.3% in 2019 to 9.5% in 2020.

◆ Expansion of Industrial Accident Insurance for Special Types of Workers and Establishment of Penalty Dispute Resolution Standards = Over the past four years, the government has also pursued policies to protect the rights of special types of workers, construction site workers, and foreign workers who were in blind spots of protection. Through amendments to the Enforcement Decree of the Industrial Accident Compensation Insurance Act, the number of special types of workers covered by industrial accident insurance was sequentially increased from 9 occupations, including insurance planners, to 6 additional occupations such as door-to-door salespersons, reaching a total of 15 by July this year. Furthermore, with the enforcement of the revised Industrial Accident Compensation Insurance Act in July this year, which ensures more thorough application of industrial accident insurance to special types of workers, the number of insured special workers is expected to increase from 61,000 in December 2018 to approximately 670,000 in July this year.

Last year, the government established new consumer dispute resolution standards for penalty fee reductions in the event of infectious disease outbreaks for five industries?wedding, travel, aviation, lodging, and dining services?where complaints surged due to COVID-19. Additionally, in April 2019, the dispute resolution standards were revised to set the warranty period for smartphone and laptop motherboards at two years each, reducing consumers' repair cost burdens.

The government plans to establish rational and balanced systems to curb unfair practices and protect consumers in the online platform sector, a core area of the digital economy, in addition to existing fair economy tasks. It also intends to promote fair economy policies that can improve the status of vulnerable groups, such as delivery workers and courier riders, whose poor working conditions have become a social issue.

This content was produced with the assistance of AI translation services.