Now What?...

If you’ve been following the news from South Korea, you might say that truth indeed is stranger than fiction. In fact, you really couldn’t make up this stuff if you tried.

Starting last fall and culminating in the impeachment last week of former President Park Geun-Hye (pictured), there has been a series of bizarre stories involving a shamanistic cult leader, an $800,000 champion horse purchased with ill-gotten funds, some lurid rumors about how the President was spending her time, protests by millions -- and just to throw it in there, the arrest of the head of Samsung.

The President’s downfall is huge news. Korea is a young democracy, and impeachment is a difficult process. At the same time, influence peddling and corruption have been so endemic that it wasn’t clear until the very end that the President would be ejected. While not everyone is happy about the impeachment, many are hopeful it means the powerful will no long get away with whatever they want.

If you haven’t been following the story, it’s complicated, but here is the Cliff Notes version: Last October, it was discovered that a childhood friend of President Park named Choi Soon-Sil, who also is a quasi-shamanistic leader of a cult called “Church of Eternal Life” was exercising Rasputin-like influence over the President. Not only was she telling President Park what color clothing to wear, and possibly performing rites in the Blue House (the Korean President’s residence), but she also was editing speeches, accessing confidential information, arranging the President’s schedule and weighing in on policy and cabinet decisions. Some say Ms. Choi was pushing President Park to take a harder line against North Korea – something with fairly significant implications.

It’s one thing for a president to be personally manipulated by a shaman. It’s another for the shaman to be influencing policy. But the real kicker was that Ms. Choi was using her relationship with President Park to strong-arm Korea’s biggest conglomerates into donating large amounts of money to her foundations and then using those funds for personal gain. Samsung paid $18 million to one of Ms. Choi’s organizations, including almost $7 million in support of the Korean national equestrian team. Yet somehow, all that support went to just one Olympic dressage competitor, who happened to be Ms. Choi’s daughter training in Europe with her new very expensive horse.

And that is what led to the arrest of Samsung’s de facto head Jae Yong Lee. Whether he knew about any of this or not – and it’s not clear that he did -- there is enough anger about how his family has benefited from government support that he is in jail. What happens next we’ll have to see.

But the really big question is whether anything will really change as a result of this. Koreans have long been hopeful that systemic corruption would get rooted out by new leaders, only to be disappointed over and over again. Too many big promises to punish wrongdoers have fizzled into slaps on the wrist.

The hope for investors today is that public outrage is powerful enough to spur changes in corporate governance and transparency. The Korean stock market has long suffered from a transparency discount, and it remains cheap today relative to other Asian markets (see chart). There are some wonderful companies being traded, and foreign investors would love to be able to participate in their productive capacity if it weren’t so frustrating to be a minority shareholder. But the gulf between being a wealthy economy and one with high-functioning developed markets is still one that Korea must bridge.