Scandals are plentiful in South Korea of late. Earlier in the year, it was Korean Airlines, Hyundai, and Samsung. Last month, Hanjin and Lotte. Now, President Park Geun-hye herself. For foreign observers, it can sometimes be hard to understand the underlying causes. Why so many? Why all of a sudden? As a Korean-American professor living in Busan, I am often asked if there is a unifying element to help explain them all. There is: the Korean preference for loyalty, something that undermines the very fabric of Korean executive culture.
For most people in the West, there is an understood separation between family or friendship ties and business. Although Americans and most Europeans are no less likely to recommend a friend for a job, there are certain things they wouldn’t do. If elected mayor, for example, they wouldn’t suddenly replace all senior staff with friends and family. In Korea, this is exactly what has happened for decades, if not centuries. Even UN Secretary General Ban Ki-moon was roundly criticized at the start of his tenure for replacing an inordinate number of UN staffers with hand-picked Koreans. One of the new hires was his former boss.
The Korean corporations recently suffering scandals – Hanjin, Lotte, Korean Airlines – are built as tight oligarchies, with virtually all key positions held by the friends, relatives, or classmates of a single family. In Korea, this is an “open secret,” something everyone knows but no one really talks about. American companies, of course, are not immune to such structures but Korean ones are unique for the frequency and depth of such connections.
Even today, a typical Korean company has its top executive positions filled with friends and relatives. This is the rule, not the exception. These executives, in turn, hire friends, acquaintances, and classmates to fill the managerial positions below them. These managers hire their own friends, acquaintances, and alma mater alumni, creating a tight network of loyalties. And yes, this happens in government too, frequently. Koreans call these relationships “ropes,” the equivalent of American coattails.
A variety of foreign pundits have, at various times, labeled Korean loyalty networks “fiefdoms” or corporate “monarchies.” What gets missed is these networks are forged by a powerful cultural expectation running in both directions.
Loyalty is, of course, expected from subordinates. The late vice-chair of Lotte is a good example of a loyal subordinate, apparently committing suicide to cover up his boss’s illegal activities, a surprisingly common occurrence in Korea. Such loyalty is expected to be rewarded in Korean culture with superiors sharing earned fortunes with loyalists.
Being the owner of a successful company therefore means you are expected to share your influence and power with friends and relatives, through gifts, benefits, or a job. If you refuse or don’t try, you are placing these ties in jeopardy. For Koreans, the management and protection of family/friend loyalties is a top cultural priority. It is amoral to do otherwise.
The main problem with prioritizing loyalties is they get in the way of competence, especially in areas requiring expertise. We now know a lot of the poor decisions made by Hanjin were prompted by ineptitude at various executive levels, including the very top. These people were placed there through loyalty, not merit, and really had no idea what they were doing.
Sadly, this plot line is not exclusive to Hanjin. Virtually every company in Korea has stories of good ideas squashed or mistakes hidden because someone close to the top of the hierarchy felt their agenda was being threatened. If you believe anonymous whistleblowers, Samsung’s exploding battery may have been caused in this way too.
Recent revelations about the Korean president pin her as being guilty of this same kind of favoritism. At the request of her friend, Choi Soon-sil, Park appears to have removed a significant number of government employees, replacing them with loyalists. One of the new hires was a Choi in-law who was later caught smuggling surveillance devices into the Blue House.
Park’s scandal illustrates just how common it is for a personal relationship to take priority over other, established protocols. In Park’s case, the example is extreme because her friend, an apparent cult leader, was allowed to influence virtually every aspect of the president’s work.
So why are we seeing these scandals now? The answer is because the tide is finally turning. In the last two decades, a series of laws have made business and government structures less susceptible to loyalty networks, particularly at the lower levels. Many scandals involving bribery and favoritism have been dragged into the open, demanding public discourse. Young adults and the media have been especially engaged, voicing outrage and popularizing stern implements like the Kim Young-ran Act. The road ahead will surely contain more headlines as other loyalty networks, corporate and otherwise, are exposed and uprooted. Only when Korea’s executive culture relinquishes its reliance on loyalty and begins to embrace merit will the recovery finally begin.
Justin Fendos is a professor at Dongseo University in South Korea and the associate director of the Tan School at Fudan University in Shanghai. He conducts research on a wide range of topics, including East Asian culture and maritime trade, and is a regular contributor for the Korea Times.