A recent series of moves by South Korea’s biggest companies to streamline their complex ownership structures have raised hopes that efforts by Korea Inc to clean up its corporate governance are finally gathering steam.

But analysts warn that despite early positive signs, the nation’s notoriously opaque conglomerates have a long way to go to bring standards into line with the rest of the developed world.

They say changes in the past several weeks by Samsung and Hyundai reflect an effort to fend off regulatory scrutiny rather than a genuine desire to improve governance in a nation plagued by corporate scandals.

“It is too early to call it reform in a true sense. They are making some gestures to increase transparency but investors will not be convinced until they see more efficient decision-making processes at these companies,” said Lee Won-il, head of Zebra Investment Management, a hedge fund.

The issue cuts to the heart of society and business in Asia’s fourth-largest economy, long dominated by a handful of family-run conglomerates known as chaebol. The groups, which include global brands such as Samsung and Hyundai, are largely responsible for the country’s economic transformation over the past half century.

But the conglomerates have come under fire in recent years for their close ties with the government and their opaque models of governance. The crux of the controversy is a complex system of cross-shareholdings that have allowed these families to exert influence over and reap profits from affiliates despite holding only a tiny stake in each.

Amid public outcry against the excesses of the chaebol, South Koreans last year elected as president Moon Jae-in, who has vowed to clean up these groups and appointed Kim Sang-jo, a long-time corporate reform activist, to spearhead the task.

Mr Kim’s efforts received a boost late last month when Hyundai Motor’s founding family said it would simplify its ownership of the nation’s second-largest chaebol, by spinning off key parts of its parts-making Hyundai Mobis affiliate.

It is too early to call it reform in a true sense

Last week, Samsung, the country’s biggest conglomerate, moved to trim its own cross-shareholdings, with battery-making affiliate Samsung SDI selling its stake in de facto holding company Samsung C&T.

Efforts are bearing fruit, according to a Samsung executive, who said: “The number of cross shareholdings among Samsung companies decreased from about 80 in 2013 to seven by 2015”.

Chung Sun-seop, head of corporate analysis group Chaebul.com, said: “The recent moves could be the beginning of chaebol reform but the key is how far the controlling families are willing to go in terms of sacrificing their vested interests.

“No matter how the ownership structure changes, the controlling family still exerts absolute control over key units.”

Kim Sang-jo, the head of the Fair Trade Commission, took a more bullish view, calling the moves “the beginning of positive changes.” However, their ultimate evaluation “will be made by the market and shareholders," said the country’s top antitrust official.

Samsung’s situation is further complicated by the status of Lee Jae-yong, its de facto chief, who is currently on a suspended jail sentence for corruption. The case is likely to go to the nation’s supreme court early next year.

“Mr Lee’s status remains problematic. He remains a board member [of Samsung Electronics] despite not being able to attend board meetings for a year [because of his corruption conviction] and he is still standing trial over the bribery case. This shows that Samsung’s governance still falls short of global standards,” said Mr Lee of Zebra Investment Management.

Kang Jeong-min, a researcher with Solidarity for Economic Reform, said: “The conglomerates have done the minimum to trim cross-shareholding, which suggests they don’t have much appetite for truly improving their ownership structures.”

Additional reporting by Kang Buseong

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