The verdict by an appeals court in Seoul freed the heir apparent to South Korean tech giant Samsung on Monday, but it has also placed the nation’s top market regulator in a bit of a bind in moving along its chaebol reform drive.

Led by Kim Sang-jo, a former shareholders’ rights advocate, the Fair Trade Commission has been pressing South Korean chaebol to voluntarily bring changes to their backdoor partnerships with politics and opaque governance structures, as well as to ban inter-affiliate trading.

The basis of its reform drive stemmed from public demand to punish profiteering chaebol in light of alleged under-the-table deals between the nation’s former leader and chaebol chiefs that were laid bare in late 2016.

While the first ruling had found Lee guilty of asking for favors in relation to his succession of control at the conglomerate, the second ruling found there was no such connection. It further found that there was no evidence to prove that Lee had asked for favors regarding his succession in return for a bribe.

The first ruling had been used by the FTC as its principal prototypes of business collusion.

In December last year, the antitrust watchdog had revised its guideline on conglomerates’ cross-shareholding structure by taking the controversial merger between Samsung C&T and Cheil Industries as an example, calling the previous version erroneous.

The FTC’s correction demanded Samsung SDI to unload an extra 4 million shares of Samsung C&T, citing the lower court’s decision that found the merger to be the outcome of a shady deal between the company and Park to speed up Lee’s succession. 

Quoting the ruling, FTC Chairman Kim Sang-jo had said the merger was carried out after “successful lobbying by Samsung’s strategic office,” and that the guideline should be corrected to protect public rights.

With the latest ruling, the legality of the guideline will inevitably be questioned, not to mention hurting the credibility of its reform measures, according to market experts. In other words, Kim may have been hasty in making such a decision and it further raises market uncertainty in the government’s policy, they added.

Coincidentally, on the same day that Lee’s latest ruling was made, the FTC announced its list of conglomerates making voluntary reform measures, stressing that meaningful changes were being carried out to improve management transparency.

Of the 57 large businesses required to make regulatory filings, 10 have either announced or carried out reform plans, said Shin Bong-sam, the head of the FTC’s large businesses division. The FTC chairman met CEOs of the major conglomerates twice last year to push for reform, he added.

Regarding criticisms that the release of the list -- which the FTC said would be done biannually -- could act as involuntary pressure against the firms, Shin asserted that the regulator was promoting voluntary participation through such a “positive” campaign and that they had not given any specific direction to the conglomerates.

“It is hoped that the businesses reform their governance structure in a way that best fits them.”

Samsung, meanwhile, was not included in the list, which had four of the top five conglomerates -- Hyundai Motor Group, SK, LG and Lotte.

Some critics, meanwhile, questioned the FTC’s drive against chaebol, calling it an “empty barrel.”

“I wonder what the FTC chairman has done so far,” said Park Sang-in, a professor at the Graduate School of Seoul National University. “I don’t think the plans addressed by chaebol are enough to prevent family members from exercising ultimate power over the entire company.”

Despite expectations built up for the FTC and its leader nicknamed “chaebol sniper,” some say public interest in the chaebol reform drive may fall after the general election in May.

By Cho Chung-un (christory@heraldcorp.com)