SK Group: Too Big to Jail? Case Overview On 1 January 2013, Chey Tae-won, Chairman of South Korean chaebol SK Group was sentenced to 4 years jal for the embezzlement of 49,7 bilion won from SK Telecom and soveral other Sx atfiiates to make up for futures investment lossas incurred in 2008". This conviction came after the restructuring of the chaebol in response to an attempted takeover by Sovereign Asset Management earlier between 2004 and 2005. The objective of this case is to alow a discussion of issues such as the corporate governance of famil-managed conglomerates in South Korea, fraudulent activities undertaken by these leading companias and the appropriateness of actions taken against them, roles of indepencient directors, the Unique relationship between the South Korean government and the chaebols, and whether compliance with corporate governance standards necessarily loads to good practices in companies. The Story Of SK Group ‘SK Group is currently the 3* largest conglomerate in South Korea, Founded in 1953 by Choi Jongkun as a small textile producer named Sunkyung Textiles Ltd, Sunkyung began growing ranialy in the 1970s when it moved into the petroleum sector as part of its vertical integration strategy to take control of the production process and raw materials supply®. Rising to become the 5” largest chaebol in the early 1990s, ‘Sunkyung expanded into the telecommunications sector and was renamed SK in 1998 to create a consistent branding across Its network of companies? 82SK Group: Too Big to Jal? ‘As of 2012, SK Group had 124 offices and affliated companies with more than 30,000 employees worldwide, Its core businesses include energy and chemicals, telecommunications, semiconductor, trading and shipping*, With annual revenues exceeding US8100 billion, SK contributes close to 8.7% of South Koreas total Gross Domestic Product (GDP) and is ranked 85" in the 2012 Fortune Global 500% Since 1998, SK has been headed by Chaiman Chey Tae-won, who inherited the company from his late father, who is the brother of Choi Jongkhun. Prior to reforms. Undertaken in 2005, the Group had a complex ownership structure in which the hey family owned numerous affliated companies linked to each other via cross- holdings or intetlocking transactions, as seen in Figure 1° ‘This enabled Choy and his family to gain control of the chaobol, despite Chey having approximately only 1% direct shareholding in SK Corporation, which was the de facto holding company of the entire network of companies before a restructuring in 2007". ro