Chairman Chey Tae Won's Dangerous Misunderstanding of Capitalism
- Enough complaints! For a Chairman operating semi plants in Korea, home to one of the world's finest human capital, is it not arrogance to claim "there are few institutions in place that support private enterprises"?
- The news of a possible JV establishment of a great-grandson subsidiary of SK Hynix just four days after its ADS listing undermines the capitalist principle of maximizing value for the existing shareholders — A deja vu of the LG Energy Solution IPO?
- Top-down decision making process (as opposed BoD-driven capital allocation policy) impedes the efficient allocation of resources at the national level and has lowered the country’s potential growth rate
- Chairman Chey, observe the principles of capitalism yourself — protect shareholder rights, ensure board independence, and adhere to the principles of capital allocation
- The "Korea Discount" — a Term coined abroad in the 1980s — was born precisely because of the attitude of Chairman Chey and other controlling shareholders, who have expanded their business empires through the pyramid ownership structures while ignoring the interests of common shareholders
- Last year's agreement between SK Hynix and its labor union to pay performance bonuses equal to 10% of OP, without cap, constitutes a disregard of the residual claim of shareholders
Chey Tae Won, Chairman of the Korea Chamber of Commerce and Industry and Chairman of the SK Group, remarked at a press conference held on July 15th at the Jeju "49th KCCI Summer Forum" that "Our country is supposed to run on democracy as a political system and capitalism as an economic system, but people sometimes seem to entirely forget that we live in capitalism. The two wheels are not functioning properly as they once did." According to the local press, he further observed that "when one wheel is broken, growth stalls and democracy itself runs into trouble," and that "growth is the means by which problems can be resolved, yet this wheel has stopped."
The Chairman added, reportedly, that "we continue to operate under the very institutions designed for the era of high growth, even though we have now entered an era of low growth — all we do is talk about the necessity of growth, while the actual systems in place to support companies that are pursuing growth are few."
This is an exceedingly perilous statement. Chairman Chey is not only the head of a major chaebol lobbying club but also the controlling shareholder of one of the three largest chaebol in Korea. The Chairman will surely acknowledge the fact that he has expanded the SK Group's empire through various M&A transactions by means of a pyramid ownership structure. According to the Fair Trade Commission, the number of SK Group affiliates stood at 219 as of May 2024 — the first instance in which any chaebol has surpassed the 200-affiliate threshold since the designation of large business groups was introduced in 1987. The SK Group itself, having overburdened itself with excessive borrowings resulting from undisciplined management, devoted itself over the past two to three years to the divestiture of affiliates and the reduction of debt in order to navigate its financial crisis.
Should the SK Hynix board approve an external equity capital injection under the pretext of establishing a semi fab subsidiary in the Honam region — thereby necessitating the issuance of new shares to a 3rd party — it will constitute a deja vu of the LG Energy Solution IPO of January 2022. The nightmare of the Korea Discount could well return. From the perspective of the capital markets, this is profoundly negative. The administration and the ruling party are presently advancing a legislation that would lower the minimum equity-stake requirement (from 100% to 50%) that applies when a holding company's grandchild-level subsidiary — which SK Hynix is — establishes a great-grandchild-level subsidiary in non-capital regions. News of the possible establishment of such a great-grandson subsidiary, which would dilute the semiconductor exposure of SK Hynix's common shareholders just four days after the ADS listing, worsens transparency and undermines the very capitalist principle of maximizing value for the existing shareholders.
Top-down management obstructs the efficient allocation of resources at the national level and depresses the country’s potential growth rate. The board of each company ought to determine capital allocation — between investment in the future (capex, R&D, M&A) and capital returns (dividends and treasury share repurchases) — independently, with a view to maximizing the interests of all shareholders. In Korea, this is not the case. Where individual enterprises in the US allocate capital rationally, national productivity rises and the potential growth rate is elevated.
The pyramid ownership structure — whereby the controlling shareholder owns the top-tier company, which in turn controls each subsidiary in descending order — is the form through which Korean chaebol exercise control over the entire group with minimal capital. The profound disjuncture between ownership and control results in the controlling shareholder's effective control substantially exceeding his or her nominal equity stake, inflicting considerable harm upon common shareholders. The risk of tunneling is likewise present.
Chairman Chey holds no direct equity stake whatsoever in SK Hynix, yet appoints the management and controls the board through the pyramid ownership structure. As the Forum noted in its commentary of July 9th, "Two Questions Concerning the Issuance of SK Hynix ADSs and the three Mega-projects," the fact that Chairman Chey — who does not even sit on SK Hynix's board — announced a massive investment plan of W1,100tr, equivalent to 74% of the company's market cap, prior to its approval by the board, constitutes a violation of the OECD Principles of Corporate Governance.
On March 25th 2025, Chairman Chey, speaking in his capacity as Chairman of the Korea Chamber of Commerce and Industry at a press conference, remarked that "the Commercial Code is, from the standpoint of the economy, akin to a constitution — and one wonders whether now is the appropriate moment to amend it in order to enter a new phase." As the head of the representative body of the Korean business community, Chairman Chey conveyed to the government his opposition to amendments to the Commercial Code that would expand the duty of loyalty owed by directors. Following the third round of amendments to the Korean Commercial Code adopted in March of this year, the board of SK Inc — the apex entity of the pyramid — proceeded to decide upon the cancellation of treasury shares equivalent to 20% of total issued shares, a measure long awaited by common shareholders. Yet why the remaining 5% of the issued shares that are held as treasury shares were not also cancelled is a matter difficult for common shareholders to comprehend.
It is precisely this conduct on the part of Chairman Chey and other controlling shareholders that gave rise to the term "Korea Discount" within the international financial community from the 1980s onward. It appears that Chairman Chey and SK Hynix entertained the expectation that the issuance of ADSs would, by itself, deliver the elimination of the valuation discount. The re-rating of a stock can be accomplished only upon the prior improvement of governance. The board must be liberated from group influence, transparency must be enhanced, and all decisions must — in accordance with the amended Korean Commercial Code — protect the interests of all shareholders and treat the interests of every shareholder fairly.
The most successful model of capitalism is the shareholder capitalism that has flourished on Wall Street and in Silicon Valley. The central reason for the success of shareholder capitalism lies in the residual claim. One of the most consequential rights of shareholders, the residual claim, denotes the right to demand, upon the bankruptcy or liquidation of a company, the value remaining — that is, the residue — after all of the company's assets have been disposed of and all legally protected claims have been satisfied in full: wages and taxes take priority, followed by general creditors such as bank lenders, and only thereafter may shareholders, if anything remains, claim a share proportionate to their holdings.
Where a company is heavily indebted or where the value of its assets is not great, the shareholders' portion will be small. Conversely, where a company has achieved great success — as in the case of Apple or Alphabet — shareholders may claim, in full, all residual value once debts have been entirely discharged. In the case of Silicon Valley icons such as NVIDIA or Tesla, the potential for share-price appreciation is, in a sense, unbounded.
Chairman Chey should, through a proper understanding of the residual claim, support the board's decision-making such that the free cash flow remaining at SK Hynix after capex and R&D is returned to shareholders. Shareholders hope that the company will concentrate on competitive fields and that the residual claims arising from such investments will, undiluted, accrue in full to the existing shareholders.
The agreement concluded last September between SK Hynix and its labor union — to pay performance bonuses equal to 10% of operating profit, without any cap — likewise constitutes a disregard of the residual claim of shareholders. In its wake, the labor unions of major conglomerates across the automotive, shipbuilding, and IT sectors have, in unison, begun to demand the payment of performance bonuses equivalent to a certain percentage (N%) of operating profit or net profit. Chairman Chey's imprudent decision-making is shaking the very foundations of Korean capitalism.
The Korean people are among the most highly educated in the world, and are endowed with remarkable quickness, judgment, and concentration of mind. Chairman Chey should consider himself fortunate to be conducting business in Korea, a nation blessed with such outstanding human capital. Enough complaints!
July 20th, 2026
Korean Corporate Governance Forum
Chairman, Namuh Rhee
Chairman Chey Tae Won's Dangerous Misunderstanding of Capitalism
Chey Tae Won, Chairman of the Korea Chamber of Commerce and Industry and Chairman of the SK Group, remarked at a press conference held on July 15th at the Jeju "49th KCCI Summer Forum" that "Our country is supposed to run on democracy as a political system and capitalism as an economic system, but people sometimes seem to entirely forget that we live in capitalism. The two wheels are not functioning properly as they once did." According to the local press, he further observed that "when one wheel is broken, growth stalls and democracy itself runs into trouble," and that "growth is the means by which problems can be resolved, yet this wheel has stopped."
The Chairman added, reportedly, that "we continue to operate under the very institutions designed for the era of high growth, even though we have now entered an era of low growth — all we do is talk about the necessity of growth, while the actual systems in place to support companies that are pursuing growth are few."
This is an exceedingly perilous statement. Chairman Chey is not only the head of a major chaebol lobbying club but also the controlling shareholder of one of the three largest chaebol in Korea. The Chairman will surely acknowledge the fact that he has expanded the SK Group's empire through various M&A transactions by means of a pyramid ownership structure. According to the Fair Trade Commission, the number of SK Group affiliates stood at 219 as of May 2024 — the first instance in which any chaebol has surpassed the 200-affiliate threshold since the designation of large business groups was introduced in 1987. The SK Group itself, having overburdened itself with excessive borrowings resulting from undisciplined management, devoted itself over the past two to three years to the divestiture of affiliates and the reduction of debt in order to navigate its financial crisis.
Should the SK Hynix board approve an external equity capital injection under the pretext of establishing a semi fab subsidiary in the Honam region — thereby necessitating the issuance of new shares to a 3rd party — it will constitute a deja vu of the LG Energy Solution IPO of January 2022. The nightmare of the Korea Discount could well return. From the perspective of the capital markets, this is profoundly negative. The administration and the ruling party are presently advancing a legislation that would lower the minimum equity-stake requirement (from 100% to 50%) that applies when a holding company's grandchild-level subsidiary — which SK Hynix is — establishes a great-grandchild-level subsidiary in non-capital regions. News of the possible establishment of such a great-grandson subsidiary, which would dilute the semiconductor exposure of SK Hynix's common shareholders just four days after the ADS listing, worsens transparency and undermines the very capitalist principle of maximizing value for the existing shareholders.
Top-down management obstructs the efficient allocation of resources at the national level and depresses the country’s potential growth rate. The board of each company ought to determine capital allocation — between investment in the future (capex, R&D, M&A) and capital returns (dividends and treasury share repurchases) — independently, with a view to maximizing the interests of all shareholders. In Korea, this is not the case. Where individual enterprises in the US allocate capital rationally, national productivity rises and the potential growth rate is elevated.
The pyramid ownership structure — whereby the controlling shareholder owns the top-tier company, which in turn controls each subsidiary in descending order — is the form through which Korean chaebol exercise control over the entire group with minimal capital. The profound disjuncture between ownership and control results in the controlling shareholder's effective control substantially exceeding his or her nominal equity stake, inflicting considerable harm upon common shareholders. The risk of tunneling is likewise present.
Chairman Chey holds no direct equity stake whatsoever in SK Hynix, yet appoints the management and controls the board through the pyramid ownership structure. As the Forum noted in its commentary of July 9th, "Two Questions Concerning the Issuance of SK Hynix ADSs and the three Mega-projects," the fact that Chairman Chey — who does not even sit on SK Hynix's board — announced a massive investment plan of W1,100tr, equivalent to 74% of the company's market cap, prior to its approval by the board, constitutes a violation of the OECD Principles of Corporate Governance.
On March 25th 2025, Chairman Chey, speaking in his capacity as Chairman of the Korea Chamber of Commerce and Industry at a press conference, remarked that "the Commercial Code is, from the standpoint of the economy, akin to a constitution — and one wonders whether now is the appropriate moment to amend it in order to enter a new phase." As the head of the representative body of the Korean business community, Chairman Chey conveyed to the government his opposition to amendments to the Commercial Code that would expand the duty of loyalty owed by directors. Following the third round of amendments to the Korean Commercial Code adopted in March of this year, the board of SK Inc — the apex entity of the pyramid — proceeded to decide upon the cancellation of treasury shares equivalent to 20% of total issued shares, a measure long awaited by common shareholders. Yet why the remaining 5% of the issued shares that are held as treasury shares were not also cancelled is a matter difficult for common shareholders to comprehend.
It is precisely this conduct on the part of Chairman Chey and other controlling shareholders that gave rise to the term "Korea Discount" within the international financial community from the 1980s onward. It appears that Chairman Chey and SK Hynix entertained the expectation that the issuance of ADSs would, by itself, deliver the elimination of the valuation discount. The re-rating of a stock can be accomplished only upon the prior improvement of governance. The board must be liberated from group influence, transparency must be enhanced, and all decisions must — in accordance with the amended Korean Commercial Code — protect the interests of all shareholders and treat the interests of every shareholder fairly.
The most successful model of capitalism is the shareholder capitalism that has flourished on Wall Street and in Silicon Valley. The central reason for the success of shareholder capitalism lies in the residual claim. One of the most consequential rights of shareholders, the residual claim, denotes the right to demand, upon the bankruptcy or liquidation of a company, the value remaining — that is, the residue — after all of the company's assets have been disposed of and all legally protected claims have been satisfied in full: wages and taxes take priority, followed by general creditors such as bank lenders, and only thereafter may shareholders, if anything remains, claim a share proportionate to their holdings.
Where a company is heavily indebted or where the value of its assets is not great, the shareholders' portion will be small. Conversely, where a company has achieved great success — as in the case of Apple or Alphabet — shareholders may claim, in full, all residual value once debts have been entirely discharged. In the case of Silicon Valley icons such as NVIDIA or Tesla, the potential for share-price appreciation is, in a sense, unbounded.
Chairman Chey should, through a proper understanding of the residual claim, support the board's decision-making such that the free cash flow remaining at SK Hynix after capex and R&D is returned to shareholders. Shareholders hope that the company will concentrate on competitive fields and that the residual claims arising from such investments will, undiluted, accrue in full to the existing shareholders.
The agreement concluded last September between SK Hynix and its labor union — to pay performance bonuses equal to 10% of operating profit, without any cap — likewise constitutes a disregard of the residual claim of shareholders. In its wake, the labor unions of major conglomerates across the automotive, shipbuilding, and IT sectors have, in unison, begun to demand the payment of performance bonuses equivalent to a certain percentage (N%) of operating profit or net profit. Chairman Chey's imprudent decision-making is shaking the very foundations of Korean capitalism.
The Korean people are among the most highly educated in the world, and are endowed with remarkable quickness, judgment, and concentration of mind. Chairman Chey should consider himself fortunate to be conducting business in Korea, a nation blessed with such outstanding human capital. Enough complaints!
July 20th, 2026
Korean Corporate Governance Forum
Chairman, Namuh Rhee