The four-year sentence handed down to the SK chairman on Thursday sent jitters through the local corporate sector, particularly among the conglomerates, as it signaled that Korea was ready to clamp down on irregularities at all costs.

With the sentence, Chey Tae-won was immediately put behind bars, which added to the shock that SK along with the rest of the corporate sector was feeling, industry watchers said.

The Seoul Central District Court jailed Chey for embezzlement of nearly 50 billion won that was used to invest in stocks.

But many knew that the message went beyond an anti-embezzlement campaign; the ruling was a sign, industry watchers said, that the incoming Park Geun-hye government would not allow conglomerates to get away with a slap on the wrist for their crimes.

“The pledges on economic democratization, especially those on strengthening of legal ground for preventing the conglomerates from gaining an advantage in the sector, are expected to be have received a boost with the ruling,” said Kim Sun-woong, the executive director of the Center for Good Corporate Governance.

He added that companies will also become more careful about committing crimes such as embezzlement or negligence that destroy the wealth of the shareholders, especially repeated offenders.

Chey had already been previously sentenced to three years of incarceration in 2008, but was granted a pardon after less than three months.

Industry organizations, however, appeared concerned about dampening the corporate sector morale and performance.

“We are concerned that the ruling may spread the spirit of anti-corporation in the country,” the Federation of Korean Industries said in a statement following the ruling.

It also expressed regret that the court had not fully taken into account Chey’s contributions to the domestic economy with both expert management and acts of social contribution, while improving Korea’s image abroad.

The Korean Chamber of Commerce and Industry spoke in similar lines, saying it was a shame that the sentence was handed down amid such dire economic conditions.

On top of the global economic downturn, the country is recently facing an uphill battle in the export markets due to the growing competition with the cheaper yen.

“Our concern is that the ruling may be a letdown for companies that may ultimately disengage from efforts to contribute to society and improve their corporate governance,” the chamber said in a statement.

By Kim Ji-hyun (jemmie@heraldcorp.com)