Four to five out of every 10 elderly owners of small and mid-sized Korean companies are considering selling management control to hand over their businesses, a survey has found. Of 1,500 companies that signed agreements with Woori Bank's Business Succession Support Center, 886, or 59.1%, are run by owners in their 60s or older, according to financial industry data released on the 15th. Preserving technology and jobs makes succession an issue that can no longer be left unaddressed, yet many companies have found no suitable successor. The Ministry of SMEs and Startups has estimated that 675,000 small and mid-sized companies run by owners aged 60 or over have failed to find a successor, and that 9.4% are considering shutting down altogether.
Owners would prefer to pass their businesses to their children, but reality is less accommodating. Children may not want to take over a small company, or may prefer to inherit the proceeds from a sale rather than the burden of running the business. That is why owners who cannot find a successor, but do not want to close a company they built over decades, have little choice but to look to third-party sales through mergers and acquisitions or management buyouts by employees. In the Woori Bank survey, 44.8% of all owners said they were leaving open the possibility of a third-party sale.
When a company shuts down, core technology accumulated over decades disappears along with jobs, and the shock spreads to disrupted operations at customers and suppliers, industrial hollowing-out and shrinking local economies. If small and mid-sized companies — the backbone of the Korean economy — are pushed one after another toward a succession cliff for lack of successors, the sustainability of the corporate ecosystem itself could be shaken. Japan, where a surge in suspensions and closures of small companies after entering a super-aged society dealt a heavy blow to its manufacturing base, is not someone else's problem.
The ruling and opposition parties agreed on the 15th to pass a special law on business succession support that would provide tax and financial support for succession through third parties and M&A, and the government and the ruling party are preparing to enact a special law on employee acquisitions of companies, a tentative title. Lee So-young, the nominee for minister of SMEs and startups, also pledged at her confirmation hearing that day to review ways to diversify succession methods. It is welcome that the government and political circles have begun seeking solutions, but there is not much time. Constraints that block family succession remain, including high inheritance tax rates and higher hurdles for the family business inheritance deduction. To protect the technological capabilities and stable jobs companies have built up through smooth transfers of management to relatives or third parties, bold incentives, financing support and the removal of regulations must be put in place and carried out without delay.
