Daelim Group, South Korea’s construction and petrochemical conglomerate, has vowed to get rid of cross-shareholding ties among affiliates and simplify governance structure to prevent work funneling practices among units and enhance business transparency.

Daelim Group on Sunday announced that it will stop any internal transactions among its affiliates to resolve criticism about keeping work within the corporate family. The company said it will not allow any new business contracts among its units this year and even terminate deals that are still under contract except for few necessary deals.

The group also said that it will readjust stake-holding of its real estate brokerage firm A Plus D Corp. which is wholly owned by its owner families - 55 percent by Lee Hae-wook, the third-generation heir, and 45 percent by his son. In addition, it plans to set up an official committee in charge of supervising internal trades among affiliates.

It has also decided to completely remove cross-shareholding ties among units within the first quarter this year. “Although cross-shareholding is not illegal under the current fair trade law, we will eliminate it to establish more transparent governance structure,” said the group. To untangle the ties, the group will dispose of a 4.32 percent stake that its tourism unit Ora Resort Co. holds in Daelim Corporation that acts as the holding entity of the group.

Cross-shareholding structure common among Korean conglomerates, or chaebols, allows chaebols’ founding families to control their vast business empires with only small stakes in key units.

Internal transaction is also a preferred way for Korean chaebols to avoid inheritance taxes. Korean corporations where heirs hold high stakes were found to have allowed more internal trading among affiliates.

By Choi Jae-won and Choi Mira

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]