Social Affinity among Top Managerial Executives of Large Corporations in Korea Author(s): Eui Hang Shin and Seung

Kwon Chin Source: Sociological Forum, Vol. 4, No. 1 (Mar., 1989), pp. 3-26 Published by: Springer Stable URL: http://www.jstor.org/stable/684433 . Accessed: 22/04/2011 02:15
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Sociological Forum, Vol. 4, No. 1, 1989

Social Affinity Among Top Managerial Executives of Large Corporations in Korea'

Eui Hang Shin2 and Seung Kwon Chin3

Korea is a society subject to quite diverse social forces. Modernization "should"encourage reform, but the yoke of tradition restrains this tendency. Thispaper examines the patterns of preferential treatment of executives, based on family, school, and regional ties, by the owners of large "Jaebol" corporations in Korea. We found that about 21 % of the total number of executive positions in the large corporations were occupied by individuals who had some type of '!familytie" with the owners of the corporations. Also, there is a strong tendency of corporation owners to employ the executives of the same regional origin of birth as their own, but the affinity based on school ties was not as strong as that of regional origin. Thefindings of this study seem to support the argumentsof previous studies that claimed a "trust" factor as a main cause of social similarity and affinity between the owners and executives in corporations.
KEY WORDS: Korea; social affinity; top management; preferential hiring; ascriptive ties.

INTRODUCTION Industrialization and the accompanying socioeconomic advancement convey images of greater equality of opportunity and progress toward an elusive egalitarian ideal. Parsons (1951), however, while acknowledging the unprecedented level of opportunity in industralized nations, still emphasized the persistenceof certain aspects of the older order. He assertedthat ascriptive ties based on kinship, ethnicity, common educational background, and other
'An earlier version of this paper was presented at the annual meetings of the American Sociological Association, August 17-22, 1987, Chicago, Illinois. 2Department of Sociology, University of South Carolina, Columbia, South Carolina 29208. 3Department of Sociology, Yale University, New Haven, Connecticut 06520. 3
0884-8971/89/0300-0003$06.00/0 ? 1989 Plenum Publishing Corporation

Shin and Chin

factors "define criteria of eligibility, and therefore in what roles ego may or may not appear vis-a-vis alter" (1951:96). We might expect the institutionalization of mass education and greater respect for civil rights to mitigate the effects of ascription or eventually break it down completely. Residual ascriptiveelements seem to persist in some form in every society, however. Mayhew (1968) argues that ascription will always be present because of its economical use of previously established social arrangements: "The source of the staying power and functional capacity of ascription can be summed up in three words: it is cheap. Ascription involves using an existent, pre-established structure as a resource rather than creating a new specialized structure for the same purpose" (1968:110). Such a contention provides support for intuitively held beliefs regarding the prevalence of social forces that undermine the emergence of purely universalistic forms of organization. Ben-Porath (1980:1) asserts that "the identity of the people engaged in a transaction is a major determinant of the institutional mode of transaction." Harbison and Myers (1959) argue that even in the most industralized societies, access to the upper tiers of management quite frequently is based on "whom you know" rather than "what you know." Universalism and merit, then, are placed behind fortuitous personal relationships with certain key personnel in the corporate hierarchy. In commenting on the recruitment of corporate executives, Moore (1962) uses the metaphor of a "bureaucratic kinship system" based on "homosexual reproduction" in which men reproduce in their own image. In a similar vein, Kanter (1977) writes that managers tend to guard power and privilege for those who fit in, for those they see as "their kind." Trust and loyalty are cited as the key factors. Harbison and Myers (1959:68) further state that "the incumbents in the managerial hierarchy seek as new recruits people they can rely upon and trust. They demand that the newcomers be loyal, that they accept the authority (of the family, the party, the government, or the professional superior, as the case may be), and that they conform to a prescribed pattern of behavior." Given such constraintsin the choice of managementofficials, the recruiter is put into a difficult position. "After all," writes Mayhew, "the problem of a personnel manager is not to find the best possible people to fill available positions; he seeks to fill positions with qualified applicants at a minimum cost to the organization" (1968:111). If loyalty and trust can be ascertained somehow with a minimum level of uncertainty, then the personnel manager should pursue this means. Kanter (1977:49) notes that "closed inner circles in which trust is assumed can be achieved by two kinds of homogeneity: similarity of social background and characteristics, or similarity of organizational experience." Thus the recruitment of corporate executives usually involves the exploitation of already existing social networks for both the

Social Affinity Among Top Managerial Executives in Korea

dissemination of information on availabilityof positions as well as for gathering information on potential candidates for the positions. This procedure saves the organization time and money, but most importantly, it saves the organization from taking unnecessary risk. Davis (1950:96) also views socialization for future roles as the principal function of ascription, but contends that when society chooses between the principles of early training (ascription) and competitive excellence (achievement), it is "an unconscious but difficult choice." Mayhew explains that the end result of the "cost-minimization strategy" is "to reproduce in one functional context the structural patterns of another functional setting" (1968:113). Obviously, "one functional context" with which we are concerned is the executives of corporations, but exactly which networks are exploited is a bit unclear. We may expect previously established networks based on kinship, common regional origin, or common educational background, for example, to resurface. The difficulty with isolating such networks, however, is that they are amorphous with very loose boundaries. Granovetter (1973:1371) found that "in many cases, the contact was someone only marginally included in the current network of contacts, such as an old college friend or a former workmate or employer, with whom sporadic contact had been maintained." Granovetter provides a useful definition that helps us discern the manifestations of the social ties we are dealing with and the networks from which they arise: "the strength of a tie is a (probably linear) combination of the amount of time, the emotional intensity, the intimacy (mutual confiding), and the reciprocal services which characterize the tie" (1973:1361; see also Homans, 1950:243, on the strength of interpersonal ties). We believe the degree of ascription is correlated with Granovetter'sstrong and weak ties. For example, the relationship between two members of the same immediate family will involve greater amounts of time, emotional intensity, and mutual confiding than the relationship between distant relatives. It is to be expected that the stronger a tie, the greater degree of ascription involved, and that the greater extent of this relationship would be manifested in preferential treatment, including hiring. As Granovetter indicates, "strong" and "weak" are not absolute terms -they are simply end points on a continuum. This conclusion meshes well with both the role of ascription and the nature of social ties. Ascription is a key factor in job recruitment because it minimizesthe cost to the organization. If trust and loyalty are the criteriafor hiring, then previously established social networks of various sorts are the cheapest way to determine eligibility. On the premise that ascription is a cost-effective means for job recruitment and that the strength of a social tie falls somewhere on the continuum

Shin and Chin

from strong to weak, we can reach some predictors regardingthe hiring practices of corporations. Arrow observes that "in the absence of trust it would become very costly to arrange for alternative sanctions and guarantees and many opportunities for mutually beneficial cooperation would have to be forgone" (1969:62). It has been suggested that, in the interpersonal relationships, "the expectation of continuing exchange has a favorable effect on the behavior of the parties" and the identity of the parties involved in transactions is a signal of the quality of the terms of exchange (Ben-Porath, 1980:6-7). We would expect that loyalty and trust can be most readily demonstrated among immediate family membersand otherswho are linked together by strong ties. Furthermore, although this is not as obvious, we would expect that the degree to which trust and loyalty can be demonstrated diminishes as the strength of ties diminishes. This also holds true for the more distant members of the social network. As Granovetter indicates, "The problem of trust is closely related .... Whether a person trusts a given leader depends heavily on whether there exist intermediarypersonal contacts who can, from their own knowledge, assure him that the leader is trustworthy, and who can, if necessary, intercede with the leader or his lieutenants on his behalf.... Leaders, for their part, have little motivation to be responsive or even trustworthy toward those to whom they have no direct or indirect connection" (1973:1374). To examine these social affinity arguments, we focused on the top managerial executives of the major 100 business corporations in Korea. The following eight positions were included; chairman of the board (Howe Jang), vice chairman of the board (Bu Hwoe Jang), president (Sa Jang), vice president (Bu Sa Jang), executive managing director (Juen Mu), managing director (Sang Mu), director (I Sa), and auditor (Kam Sa). From this information, the tendency of "in-hiring"on the part of the owners can be analyzed. "In-hiring"refers to the practice in which corporation owners employ individuals who possess, to some degree, the same background as the owner (cf. Hout, 1983; Marsden, 1981; Duncan, 1979; Sobel et al., 1985). Owners' favoritisms will be extrapolated from the statistical profile of the executives who work for them.4 Choi (1983) observed that family ties, regional ties, and school ties are the essence of "sectionalism"among the Korean people. Loyalty through such ties is firmly entrenched in Korea's past; historically, such a notion has profoundly influenced the patterns of association. Specifically, concerning the recruitment of managers of business corporations, the case of Korea seems to echo the more general practice of corporations everywhere (Savage, 1979; Useem and Karabel, 1986; Bourdieu and Passeron, 1977; Levine, 1980;
4The data obtained in this study are directly applicable only to the characteristics of the executives at the time of the survey. It is assumed, however, that these characteristics are indicative of an underlying tendency toward preferential recruitment, retention, and promotion of the corporate executives on the part of the corporation owners.

Social Affinity Among Top Managerial Executives in Korea

Kanter, 1977; Useem, 1979, 1984; Kaelble, 1980; Khalaf and Shawayri, 1966; Mills, 1956; Omohundro, 1981; Taira and Wada, 1987; Wong, 1985). We predict that the statistical profile of the executives will not reflect purely universalistic hiring practices based solely on past achievement and qualifications. Instead, those with ascriptiveties will be representedin the profile in disproportionatelyhigh degrees-the cost-minimizationstrategyof corporations demands that this be the case. The extent to which such preferential hiring takes place is undoubtedly influenced by a number of different factors. One primary influence can be isolated, however: the strength of the ascriptive tie. Thus it is expected that preferential treatment is given to those with strong ties (immediate family, close friends) first; when this pool is exhausted, progressively weaker ties are exploited. Also, given the general trend toward pure meritocracy that supposedly accompanies societal modernization, we expect that criteria for employment become progressively less dependent on the presence of ascriptive ties. This very general characterization implies that younger owners would be more inclined than their older counterparts to hire a demonstrably qualified stranger. Similarly, preferential hiring is expected to be less evident in younger industries as well. As Korea is in a period of rapid transition, it is likely that the role of ascription has not yet stabilized and variations will appear in the data.

LARGE-SCALE ("JAEBOL") CORPORATIONS IN KOREA During the years after liberation in 1945, the Korean economy suffered two catastrophes: division of the country into north and south, in which most of the heavy industry was inherited by the north, and a devastating war, in which perhapsa quarterof the wealth of South Koreawas destroyedand over a million lives were lost. Recovery was slow and, during the period of 1953 to the early 1960s, the economy was maintained largely by massive economic and military assistance from the United States. This period witnessed a large expansion of education and other changes that helped lay the groundwork for subsequent rapid development. The growth of national income was slow; however, economic prospects began to improve rapidly in the early 1960s. From 1963 to 1976, the Korean gross national product increased at a rate of about 10o per year, one of the most rapid growth rates experienced anywherein the world. This rapid growth was accompanied by changes, other than political, that are usually attributed to modernizing economies: decline in the share of agricultural employment and income; rapid industrialization, urbanization, and improved communications; increased literacy and social
services (Mason et al., 1980:40).

During the process of rapid economic development, business organizations emerged as the most significant and extensive kinds of organizations

Shin and Chin

in Korea. The number of manufacturing firms increased from 15,204 in 1960 to 25,726 in 1977, while the number of workers employed in those manufacturing firms increased from 275,254 to 1,918,981 during the same period. It is important to note that the rapid economic development in Korea has heavily relied upon "Jaebol" groups, that is, horizontally and vertically integrated conglomerates, rather than small- and medium-scale business organizations. The Jaebol corporations have been considered as a locomotive as well as a product of the rapid economic development in Korea (Mason et al., 1980; Lim, 1981; Jones and Sakong, 1980; Hattori, 1982). Table Al in the appendix shows that the proportion of gross domestic product (GDP) produced by Jaebol corporations increased continuously. Other data show that the large corporations' rate of expansion was much higher than that of smaller corporations (Jones and Sakong, 1980:248-266). The importantposition of Jaebol corporationsin the Korean economy is clear. The five largest Jaebol groups accounted for 7?70 of nonagricultural GDP and nearly 15% of the manufacturing GDP. The 46 largest Jaebol corporations accounted for about 19 and 37%/o of nonagricultural and manufacturing GDP, respectively. It has been suggested that the Jaebol corporations have functioned as powerful institutions for concentrating scarce capital for developmental projects, and they still "performinternationalcompetitive functions by making capital available more cheaply for companies in the group and by freeing new ventures from the need to make a profit in the short term" (Johnson,
1987:140). Lim (1981), Johnson (1987), and Jones and Sakong (1980) have

commented that vertical and horizontal integration of the Jaebol group has allowed an enterprise to alleviate the risks and the uncertainties of market instability and rapid structural change. It should be noted, however, that the Jaebol groups have been criticized by both the public and the academia for unethical and unfair practices of "monopolistic squeezes" and tax evasion, and for receiving favoritism from the government in the form of credit allocation and market information (Lim, 1981:47). Indeed, one of the buzzwords commonly used to describecontemporary Korea is "Korea, Inc.," implying a hand-in-glove interaction between the government and the Jaebol groups in the development and implementation of economic development policies. In fact, as we will explore later in this paper, the symbiotic relationship between the government and the Jaebol group and their concomitant social networks are important factors that have influenced the preferential hiring patterns of Jaebol corporation executives.

HYPOTHESES For the present study, the following three hypotheses have been established:

Social Affinity Among Top Managerial Executives in Korea

1. Preferentialtreatment for "family executives"increasesthe likelihood of promotion and appointment of multiple positions. 2. There is in-hiring on the basis of regional ties. 3. There is in-hiring on the basis of school ties. For further analysis, the following supplementaryhypotheses have been established by adding control variables to Hypotheses 2 and 3: 4.1. The in-hiringtendencyon the basis of regionaland schoolties willvary according to the age of the corporation owner. 4.2. The in-hiring tendency on the basis of regional and school ties will vary according to the level of education attained by the corporation owner. 4.3. The in-hiring tendency on the basis of regional and school ties will vary according to the age of the corporation executives. 4.4. The in-hiring tendency on the basis of regional and school ties will vary according to the level of education attained by the corporation executives. 4.5. The in-hiring tendency on the basis of regional and school ties will vary according to the size of corporations.

DATA AND METHODS Four publications, which provide profiles of the top managerial executives of Korean business corporations, were used as sources of data. They are The Seoul Economic Daily News (Seoul Kyungjae Sinmum), Directory of the Listed Corporations (Sangjang Whoesa Kyungyoung Inmyungrok), Directory of the Korean Business World (Hanguk Jaegye Insarok), and Korea's Fifty Major Financial Groups (Hanguk eui 50 dae Jaebol). The statistical technique that was applied to this study is the log-linear models of "perfect" and "quasiperfect" recruitment, and the log-linear program in SPSSx and FREQ (Haberman, 1979) was used to estimate the parameters.

FINDINGS General Characteristics of Executives The total number of managerial positions and executives of the 100 major Jaebol corporations reported by Seoul Economic Daily News in 1978 amounted to 3762 and 3035, respectively. The average number of positions and executives in each corporation was 37.6 and 30.4, respectively. This means that there were many executives who hold two or more positions concurrently.

10

Shin and Chin

Table A2 in the appendix shows some general characteristics of Jaebol corporations, especially in terms of the social characteristics of executives. The mean age of the executives is 49.2. Their ages range from 23 to 83, with a standard deviation of 8.4 years. Most executives are in their 40s and 50s, and fewer are in their 30s or over 60. The age of executives is generallygreater in the higher ranking corporations. Table A3 in the appendix shows the percentage distribution of owners and executives by their regional origin. One interesting fact is that 7 out of the top 10 corporations are owned by individuals from Youngnam province. This finding bolsters the public impression that owners from Youngnam province have been favored by fellow Youngnam-born presidents (Presidents Park Chung Hee and Chun Doo Hwan) and governments of South Korea since 1961. Another interesting fact shown in Table A3 is that Ibuk province, now a territory of North Korea, is the region of origin for 22 out of 100 corporation owners. If we take into account that the number of people from Ibuk province is very limited in South Korea, since they had to move to South Korea before the end of the Korean War, the success of so many Ibuk businessmen is quite remarkable. According to Table A3, the largest proportion of executives is from Youngnam province, followed by the executives from Seoul, Joongbu, Ibuk, and Honam provinces. The proportion of executives from Seoul province, 28.1 07o, is much higher than was the proportion of Seoul residents Moreover, taking in the total population of South Korea in 1975, 19.80%o. into account that most executives were born before Seoul started to grow rapidly, this proportion of executives from Seoul can be said to be remarkably high. Seoul is not only the capital of the country, but also its major economic center; therefore executives born in Seoul have a geographical advantage over those born elsewhere in entering the executive hierarchy of major corporations. On the other hand, the proportion of executives from is far below the proportion of the total population Honam province, 8.00%o, from Honam in 1975, 18.6%. This implies that the people from Honam province are to some extent excluded from the corporate world. As in the case of corporation owners, the Youngnam province also supplies a large proportion of executives, especially in large-sized corporations. As shown in Table A3, the proportions of the executives from Youngnam province are greater at high ranks. The share of executives from Seoul in highly ranked corporations is greater than its proportion of total executives as well. of all executives have Data compiled by the authors show that 85%Vo were graduated from Seoul National a college education, and almost 30?70 University, which is considered by many to be the most prestigious university in Korea. The proportions of graduates of Yonsei University and Korea University, both understood to be ranked immediately below Seoul National University, were much smaller. The graduates of Seoul National were more

Social Affinity Among Top Managerial Executives in Korea

11

concentrated in highly ranked corporations. On the other hand, the proportion of graduates of other universities diminished with increasing corporation rank. A significant fact is that the educational attainment of the Jaebol corporation owners was significantly lower than that of other executives. Over 40?70of all corporation owners did not have a college education, and the proportion of owners who graduated from well-known universities never exceeded approximately 10%. This implies that many corporation owners accumulated their capital without going through traditional career development channels (data available from the authors).

Kinship Ties Our tabulations show that 13.5% of the top executives were numbers of the owner's family.5 Furthermore, these "family executives" occupied of the total number of executive positions available. This implies that 20.90%o family members were more likely than other executives to hold two or more positions concurrently. Of the 727 positions occupied by executives who concurrently held at least one other position, 377 slots were filled by family executives. The proportion of family executives is larger in smaller corporations. The relationship between corporation size and the absolute number of family executives is positive, however, with a correlation coefficient of 0.265 (p < 0.005). This implies that, although the proportion of the family executives diminishes as corporation size increases, the tendency of the owners to hire family members does not diminish. That the number of family members hired does not increase with corporation size merely reflects that the pool of family members is finite. Such a finding supports the argument that Korean enterpreneurs are likely to obtain managerial resources from those with ascriptive ties, including family ties, for the sake of loyalty and trust. The mean age of family executives is 44.8. This is much lower than that of all executives combined, 49.2, suggesting that family executives have an advantage over other executives in gaining promotions to the upper tiers of management in a shorter period of time. These findings affirm the earlier hypothesis that preferential treatment for family executives exists in major Korean business corporations: family executives appear to have a greater chance of early promotion and are more likely to hold several managerial positions concurrently than are other executives.
5In this study, an owner's family members are comprised of "primary" relatives (father, mother, brother, sister, son, daughter, and spouse), "secondary" relatives(primaryrelativesof an owner's primary relatives), and "tertiary"relatives (primary relatives of an owner's secondary relatives).

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The preferential treatment accorded to family members by the corporation owners really is no surprise, given the turbulent environment in which Jaebol corporations must operate. The term "Korea, Inc." connotes direct control and involvement of the government in the business activities of corporations. As a matter of routine procedure, Korean Jaebol groups must make extensive "political contributions" to government officials in exchange for beneficial legislation, government backing on bank loans, or other types of favoritism. Without such guarantees, corporations are faced with insurmountable bureaucratic or financial obstacles. Tax evasion is common as well. Given these practices, a corporation's confidential files contain a bit more than secrets about cutting-edge research: They harbor detailed information about fund transfers, tax strategies, and the like. Obviously this information, if leaked, would do irreparable damage to any Jaebol group. Secrecy, then, is a necessary prerequisite for survival; without it, repercussions from the government or from competing corporations are imminent. This helps explain why trust and loyalty are the most desired "credentials"for potential executives and why exploitation of strong ascriptive ties, such as those found among family members, often is perceived as the safest recourse. Regional Ties To prevent distortion of the data, family executives are excluded from this analysis of common regional background, as they are clearly more likely to be from the same region as that of the owner than are other executives. Only nonfamily members who share regional ties with the owner are included. Table I shows that the owner's regional origin and the executive's regional origin are not statistically independent of each other. In the data, the expected frequencies are under a perfect model of regional affinity. That is, the expected frequencies in the table are completely determined by the marginal distribution of the regions of owners and executives (Hout, 1983). The goodness-of-fit of the model is very low with 1037.9 Pearson chi-squareand 758.7 likelihood ratio chi-square. Accordingly, a certain relationship between the regional origin of owner and executive can be assumed: owners of corporations recruit and promote their executives preferentially on the basis of common regional origin. In Table I, we also see that the residuals of the diagonal cells are very large. Such a high residual indicates that the tendency of the corporation owners to employ more executives of the same regional origin as their own is very strong. Table II shows the expected frequencies and log-linear parameterestimates under a quasiperfect model of regional affinity. The expected frequencies under the model are the expected frequencies after blocking out the main diagonals, and the

Social Affinity Among Top Managerial Executives in Korea

13

Table I. Observed vs. Expected Frequencies Under Perfect Recruitment Model of Regional Affinitya

Executive's place of birth: owner's place of birth Seoul Seoul Joongbu Youngnam Honam Ibuk Joongbu Seoul Joongbu Youngnam Honam Ibuk Youngnam Seoul Joongbu Youngnam Honam Ibuk Honam Seoul Joongbu Youngnam Honam Ibuk Ibuk Seoul Joongbu Youngnam Honam Ibuk

Observed count and percentage 131 (4.6) 265 (9.4) 229 (8.1) 38 (1.3) 120 (4.2) 109 (3.9) 283 (10.0) 143 (5.1) 17 (0.6) 120 (4.2) 57 (2.0) 146 (5.2) 480 (16.9) 34 (1.2) 98 (3.5) 12 (0.4) 28 (1.0) 36 (1.3) 104 (3.7) 36 (1.3) 47 (1.7) 60 (2.1) 67 (2.4) 24 (0.9) 149 (5.3)

Expected count and percentage 98.4 (3.5) 216.1 (7.6) 264.0 (9.3) 60 (2.1) 144.6 (5.1) 84.4 185.5 226.5 51.5 124.1 102.4 225.0 274.7 62.4 150.5 27.1 59.6 72.8 16.5 39.9 43.6 95.8 117.0 26.6 64.1 (3.0) (6.6) (8.0) (1.8) (4.4) (3.6) (7.9) (9.7) (2.2) (5.3) (1.0) (2.1) (2.5) (0.6) (1.4) (1.5) (3.4) (4.1) (0.9) (2.3)

Residual 32.6 48.9 -35.0 -22.0 -24.4 24.6 97.5 - 83.5 -34.5 -4.1 -45.4 -79.0 205.3 -28.4 -52.5 - 15.1 -31.6 - 36.8 87.5 -3.9 3.4 -35.8 - 50.0 -2.6 84.9

Standardized residual 3.28 3.32 -2.15 -2.83 -2.04 2.67 7.15 - 5.54 -4.80 -0.36 -4.48 -5.26 12.38 - 3.59 -4.27 -2.90 - 4.09 - 4.31 21.50 -0.61 0.51 -3.65 - 4.62 - 0.50 10.61

Adjusted residual 4.13 4.59 -3.10 -3.47 -2.65 3.27 9.63 - 7.80 -5.72 -0.46 -5.68 -7.33 18.09 -4.43 -5.61 - 3.23 - 5.00 - 5.51 23.27 -0.70 0.58 -4.58 - 6.05 -0.55 12.54

aLikelihood ratio chi-square = 758.7; Pearson chi-square = 1037.9; df = 16; p < 0.001.

long-linear parameter estimate for each diagonal cell allows us to compare the extent of in-hiring by each corporation owner (Hout, 1983). First, a large decrease in the likelihood ratio chi-square again confirms that the diagonal effect (the in-hiring effect) is very strong. Even after the diagonal effect has been excluded, however, the model fit is not good. This suggests that, in addition to in-hiring, there exist other minor types of favoritism on the basis of regional origin. For example, executives of Youngnam and Honam origin tend to be more underrepresented in the corporations that are controlled by non-Youngnam and non-Honam origin owners than other executives. In any case, however, there is some in-hiring according to region. Second, the log-linear parameterestimates indicate that the owners from Honam province have a stronger tendency toward in-hiring than owners from other provinces. The parameter estimate of Honam province, 2.768, is sub-

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Shin and Chin Table II. Expected Frequencies and Log-Linear Parameter Estimates Under Quasiperfect Recruitment Model of Regional Affinity' Owner's place of birth Expected frequencies Seoul Joongbu Youngnam Honam Ibuk Parameter estimates (standard error) Seoul Joongbu Youngnam Honam Ibuk Seoul Executive's place of birth Joongbu Youngnam Honam Ibuk

125.9 241.6 216.9 42.8 151.1

91.2 175.0 157.1 31.1 109.7

75.0 144.2 129.5 25.6 90.2

19.2 36.8 33.0 6.5 23.0

39.7 76.4 68.4 13.5 47.8

0.042 (0.122) 0.479 (0.097) 1.312 (0.091) 2.768 (0.167) 1.138 (0.123)

'Likelihood ratio chi-square = 55.0; Pearson chi-square = 55.2; df = ll;p <0.001.

stantially higher than that of Youngnam province, 1.312, which is second. The owners from Ibuk province also show a strong in-hiring tendency with a parameter estimate of 1.138. There are many examples that illustrate the extent of regional affinity between the owners and executives of corporations, especially in Honam and Youngnam provinces. For example, in a corporation ranked 50th, the owner of which is from Honam province, 15 of the 21 executives are from Honam. In another corporation ranked 3 1st, the owner was from Youngnam, as were 19 of the 22 executives. On the other hand, the owners from Joongbu province show a relatively low tendency of in-hiring with a parameter estimate of 0.479, and the tendency of in-hiring by owners from Seoul province is not statistically significant at a level of .05. Panels A and B of Table III show the parameter estimates for in-hiring when the owner's age and educational attainment are controlled. According to Panel A, there is no consistent effect of the owner's age on in-hiring throughout all regions. While in the case of Joongbu province the degree of affinity is slightly higher in the 60 and older age bracket, for Seoul, Youngnam, and Honam provinces the degree of affinity is highest in the 50-59 age bracket, and for Ibuk, the degree of affinity is highest in the under-50 age bracket. Such a result contradicts the initial assumption that corporations controlled by younger owners would display less in-hiring than those controlled by older owners.

Social Affinity Among Top Managerial Executives in Korea

15

Panel B indicates that, with the exception of Joongbu province, the owner's educational attainment does have a very consistent effect on in-hiring. That the parameter estimates are higher when the owners have no college education allows us to argue that the extent of in-hiring is inversely associated with the owner's level of education. It implies that, in choosing executives, the owners of corporations who have received a college education are more flexible than owners who have not. Panels C and D show the parameter estimates for in-hiring when the executive's age and university of graduation are controlled. The parameter estimates for the over-50 age category are consistently higher than those for the under-50age category. This implies that older executives are affected more by the owner's in-hiring tendency than younger executives are. In the case of Joongbu, Youngnam, and Ibuk provinces, the parameter estimates for the executives who graduated from Seoul National University are substantially lower than those for the executives who did not. Such a finding leads to the conclusion that excellent educational credentials of executives could reduce the effect of the owner's tendency to in-hire. This finding is consistent with the previous observations that as industrialism advances, education becomes a legitimate replacement for class as the means for reproduction of privilege (Bourdieu and Passeron, 1977). As such, education is a form of "pseudo-ethnicity"that serves as a basis for status group formation (Collins, 1975:86-87). Panel E of Table III shows log-linear parameter estimates for regional affinity by corporation rank. According to the data, the parameterestimates for Seoul are not statistically significant at a 0.05 level, and the parameter estimates for Joongbu, Youngnam, and Honam provinces are highest from ranks 25 to 50. On the other hand, the parameter estimate for Ibuk province is highest from ranks 1 to 25. Such a result contradicts the assumption that higher ranked corporations are less likely to exhibit the effects of in-hiring. The observed preferential recruitment of executives on the basis of region of origin is one facet of the syndrome of regionalism (Levine and Campbell, 1972; Brewer and Campbell, 1976) in Korea. As Moon (1984) notes, unfavorable stereotyping of "outgroups" is deeply rooted historically, and distrust of the outgroups is the embodiment of years of cultural development. It remains as a stubborn tradition despite vast social and economic progress. Indeed, for Koreans, region of origin is just as important and permanent an aspect of an individual's identity as any other ascriptive characteristic. Associated with such an endowment (or curse, as the case may be) are specific personality characteristics. The long-standing practice of regionbased factionalism has reinforced intragroup cohesiveness, and thus, for better or worse, common regional origin also implies similar personal qualities and values. That is, being born in the same region provides prima facie justification for a social bond. In that sense, all members of the same region, accordingto definitionby dint of traditionalism and an anachronistic social labeling

16

Shin and Chin Table III. Long-Linear Parameter Estimates for Regional Affinity by Corporations Owner's Age and Education, by Executive's Age and University, and by Corporation Rank' Seoul Panel A Owner's age Under 50 50-59 60 + Panel Bd Owner's education College No college Panel C' Executive's Age Under 50 50 + Panel Df Executive's university Seoul National Other Panel Eg Corporation rank 1-25 26-50 50-100
ap < 0.001.

Joongbu

Regionb Youngnam

Honam

Ibuk

-0.378 (0.196) 0.416 (0.206) 0.155 (0.434) -0.124 (0.145) 0.515 (0.235) 0.084 (0.162) 0.003 (0.86) -0.115 (0.196) 0.076 (0.170) 0.200 (1.96) 0.046 (0.246) -0.132 (0.209)

0.464 (0.207) 0.269 (0.179) 0.633 (0.143) 0.612 (0.124) 0.257 (0.155) 0.376 (0.129) 0.627 (0.147) 0.238 (0.170) 0.614 (0.136) 0.515 (0.159) 0.533 (0.216) 0.445 (0.153)

1.459 (0.201) 1.511 (0.177) 1.204 (0.129) 1.094 (0.177) 1.659 (0.149) 1.168 (0.119) 1.535 (0.145) 0.935 (0.159) 1.294 (0.126) 1.226 (0.150) 1.670 (0.203) 1.309 (0.154)

2.719 (0.435) 2.968 (0.331) 2.060 (0.234) 2.206 (0.215) 3.688 (0.287) 2.681 (0.220) 2.892 (0.259) 2.750 (0.306) 2.661 (0.226) 2.729 (0.313) 3.013 (0.287) 2.407 (0.292)

1.780 (0.317) 1.206 (0.258) 0.949 (0.165) 1.087 (0.170) 1.143 (0.184) 1.008 (0.208) 1.105 (0.161) 1.050 (0.237) 1.224 (0.170) 1.620 (0.625) 1.181 (0.235) 0.888 (0.181)

bRegion of birth shared by owner and executive. cLikelihood ratio chi-square = 92.4; Pearson chi-square = dLikelihood ratio chi-square = 77.5; Pearson chi-square = eLikelihood ratio chi-square = 67.5; Pearson chi-square = fLikelihood ratio chi-square = 56.1; Pearson chi-square = gLikelihood ratio chi-square = 92.0; Pearson chi-square =

89.3; df 78.4; df 65.9; df 56.9; df 95.8; df

= = = = =

33. 22. 22. 22. 33.

system, are a type of "extended family" with shared bases of trust and understanding. From this vantage point, it is likely that an owner will turn to those with similar regional background after the pool of family members is exhausted. As the traditional caste-like social stratification system, which was based solely on family lineage, began to give way to the social forces ac-

Social Affinity Among Top Managerial Executives in Korea

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companying modernization, it was replaced by an ascriptive system based on regional origin. Of course, such ascriptive ties did not replace the family unit, but the existing interregional hostility proved to be a convenient foundation for a substitute social network. The notion of clan aptly illustrates what occurred in this transitional period. Even in modern-day Korea, there exist villages that are populated entirely by individuals with the same surname. Here we have an attempt to reinforce the strength of ties by grouping of direct and indirect family, and by placement into the same geographical location.

School Ties Tables IV and V report the results of perfect and quasiperfect models of school ties. Neither model provides an adequate fit. The log-linear parameter estimates for the diagonal cells are low, however, and the parameter estimates for Yonsei, Korea, and other universalities are not significant. In-hiring is found only to a small extent in the categories of Seoul National and "no college education." It is important to note, however, that high school ties between corporation owners and executives often seem stronger than college ties. For example, 8 of the top 11 executives of the Daewoo company (subsidiary of
Table IV. Observed vs. Expected Frequencies Under Perfect RecruitmentModel of School Ties' Executive's university: Observed owner's count and university percentage Seoul National 122 (3.7) Seoul National 88 (2.7) Yonsei, Korea Others 405 (12.2) No college 385 (11.6) Yonsei, Korea 42 (1.3) Seoul National 31 (0.9) Yonsei, Korea Others 138 (4.2) No college 160 (4.8) Others 108 (3.3) Seoul National 83 (2.5) Yonsei, Korea Others 646 (19.5) No college 612 (18.5) No college 38 (1.2) Seoul National 19 (0.6) Yonsei, Korea Others 185 (5.6) No college 246 (7.4) Expected count and percentage 93.7 66.8 415.4 424.1 34.8 24.8 154.1 157.4 135.8 96.8 601.9 614.6 45.7 32.6 202.7 207.0 (2.8) (2.0) (12.6) (12.8) (1.1) (0.8) (4.7) (4.8) (4.1) (2.9) (18.2) (18.6) (1.4) (1.0) (6.1) (6.3) Standardized residual 2.92 2.59 -0.51 -1.90 1.23 1.25 -1.30 0.21 -2.38 -1.40 1.80 -0.10 -1.14 -2.38 -1.24 2.71 Adjusted residual 3.67 3.21 -0.80 -3.00 1.37 1.37 -1.80 0.30 -3.34 -1.94 3.14 -0.18 -1.30 -2.67 -1.76 3.87

Residual 28.3 21.2 -10.4 -39.1 7.2 6.2 -16.1 2.7 -27.7 -13.8 44.1 -2.6 -7.7 -13.6 -17.7 39.0

'Likelihood ratio chi-square = 50.49; Pearson chi-square = 50.71; df = 9; p < 0.001.

18

Shin and Chin Table V. Log-LinearParameterEstimatesUnder QuasiperfectRecruitmentModel of School Ties' Seoul National 48.6 39.5 229.9 233.6 0.421 (0.153) 0.192 (0.209) 0.117 (0.091) 0.324 (0.108) Executive's university No college Other Yonsei, Korea universities education 31.5 25.6 149.1 151.5 80.6 65.5 381.8 387.9 36.9 30.0 175.0 171.8

Owner's university Expected frequencies Seoul National Yonsei, Korea Other universities No college education Parameter estimates (standard error) Seoul National Yonsei, Korea Other universities No college education

'Likelihood ratio chi-square = 19.7; Pearson chi-square = 19.6; df = 5; p < 0.001.

the 4th-ranked corporation) all attended Kyung-gi, one of the best high schools in Seoul. And 6 of the 8 executives of another major company (subsidiary of the 63rd-ranked corporation) were graduated from Busan high school in Youngnam province. Fifteen of the 39 executives of the 44th-ranked corporation attended the same high school as well. Social affinity in terms of school ties among corporation executivesseems to be formed as fairly early stagesof schooling, which confirmsthe importanceof the regionof originas the basis of social ties. Useem and Karabel(1986) note that similarity in social and educational background seems an important criterion for selection into the group of managerial elites. This explanation accounts for the large number of executives who share educational backgrounds with the owners they work for, but it does not fully explain why high school ties seem to be so much more important than college ties.

DISCUSSION The foregoing analysis indicates a very strong tendency of owners to employ executives of the same regional origin as their own, regardlessof age. Such regional affinity was strongest between the owners and executives from Honam province. Youngnam, Ibuk, Seoul, and Joongbu provinces followed, in descending order. The affinity based on college of graduation was not as evident as regional affinity. There was only a slight tendency toward in-hiring among Seoul National University graduates and among those with no col-

Social Affinity Among Top Managerial Executives in Korea

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lege background. Among graduates of other universities, in-hiring tendency was negligible. Paradoxically, despite their overtly particularistichiring practices, Jaebol groups in Korea have been almost solely responsible for Korea's rapid economic development over the past two decades. As a resolution to this paradox, we suggest that the persistence of family ties and region of birth as selection criteria for the hiring and promotion of top managerial executives should be understood from a dual perspective; the cultural heritage of various forms of Korean factionalism and the realities of the Korean corporate arena. To fully understand the interplay between those opposing social forces, it is first necessary to understand them independently. It turns out that, in such an environment, social ties (as evidence of trust and loyalty) are tangible qualifications and people with such ties to the owner are (presumptively) competent in the only sense that counts. The region-basedethnocentrismthat was encounteredin this study finds its roots in political conflicts among three kingdoms (Koguryo, Paekche, and Silla)dating as far back as 57 B.C. As an outcome of the unificationof the three kingdoms by the Silla dynasty, a kingdom arose in the southeastern region of Korea (generally overlapping what is now known as Youngnam) that discriminated against people of the other two kingdoms (now known as Honam and Ibuk) in terms of sociopolitical opportunities. The animosity that developed between Youngnam and Honam, in particular, was the most intense, as they were two of the major political powers vying for supremacy throughout the Yi dynasty. Subsequent political strugglesdrawn along regional lines have reinforced factionalism, and stereotypes originally associated with the region of origin persist even in contemporary Korea.6 The preferential hiring in Jaebol corporations based upon region of birth is a result of the emphasis of the corporation owners on trust and loyalty as the most crucial characteristics of corporate executives. They are expected to deal with governmental red tape, regulations, and intervention in corporate business. Effectiveness in such liaison activities usually requires established "connections"or social network ties to political elites. Some connections already exist, but others must be established by providing political contributions and bribes. These activities must be conducted in strict confidence to ensure the welfare of the parties involved and can be assigned only
6Moon (1984) has documented that individuals from Honam province are labeled untrustworthy, self-seeking, and aggressive, pointing out as evidence that individuals born in Honam have been underrepresentedin cabinet-level positions, high-ranking government bureaucratic positions above the rank of section chief, supreme court justice positions, and others. On the other hand, those from Youngnam have been heavily overrepresented over the past 40 years. The overrepresentation of officials from Youngnam has been attributed to the fact that two presidents from Youngnam have ruled for the past 26 years (Park Chung Hee and Chun Doo Hawan). Furthermore,it has been suggested that regional economic inequality between Youngnam and Honam has increased over the years due to political favoritism.

20

Shin and Chin

to those who are completely trustworthy. Additionally, competition among corporations for new markets, loans, product development, and such have made the corporation owners extremely wary about protecting "business secrets." Given these duties of corporate executives in Korea, the pool of eligible recruits is severely restricted. Where trust and loyalty are the most crucial qualifications, a strong tendency toward preferentialrecruitmentis natural. The order of such recruitment depends upon the level of trust that can be demonstrated by a potential executive, or alternatively, the strength of the social tie to the owner. Family members are the obvious first choice. But since the pool of possible patrimonial executives (individuals with strong ties) is fairly limited, executives with regional ties are feasible substitutes for those with family ties. Such a shift in the base of personnel recruitment from strong ties to semistrong ties and weak ties can be considered a transitional phenomenon in which residues of the traditional system persist until the new system of social networks is firmly established. That in-hiring on the basis of college ties was not as evident as in-hiring on the basis of region of origin again confirms the importance of ascriptive ties. Since the pool of qualified individuals in terms of both college education and region of birth is sufficiently large, owners can be selective in applying criteriaof eligibility for top executives. To that extent, being a graduate of the Seoul National University, for example, may be a necessary qualification but not a sufficient one. If two candidates from the same prestigious university are applying for the job, the data indicate that, most likely, the one with a regional tie to the owner will get it. This suggests that achieved status (university degree) is a secondary dimension, considered only after the primary dimension (regional tie) when it comes to evaluation of employment eligibility. The importance of "pseudo"-ascriptiveties is also reflected in the finding that many corporate owners have used high school ties in recruiting their executives. The friendships established in high school are quite unique, and their exact flavor cannot be recapturedlater on, even in college. Indeed, high school friendships in Korea are a breed apart, and a very strong source of social affinity for the professional and nonprofessional alike.7
7Up until the early 1970s, admissions to most middle and high schools were based solely on an applicant'sperformanceon entranceexaminations, and the schools were distinctivelystratified in terms of the quality of students admitted, as measured by these entrance examination scores. This type of secondaryeducation system resultedin the emergenceof prestigious, superiorquality middle and high schools that attracted not only academically outstanding students, but also children of rich, powerful, and predominantly upper-class parents. The heavy concentration of academically capable students in a small number of exclusive secondary schools has created an environment in which a disproportionately large number of future leaders in various fields congregate. The prestige and the elitism fostered by such an environment, combined with shared educational experiences during these formative years, instills a very strong sense of camaraderie among the students of the same school-camaraderie that extends into adult and, sometimes, corporate life, as in the case of prestigious preparatory schools in the United States (Levine, 1980; Cookson and Persell, 1985).

Social Affinity Among Top Managerial Executives in Korea

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The information on the high school attended by each executive was available in only a very limited number of cases. A more definitive examination of the impact of high school ties would require a comprehensive file on such a variable. Nevertheless, from a preliminary analysis of the available data, it is rather clear that high school ties were used in the hiring of executives, perhaps because such ties span both regional and academic background ties. The findings that the graduates of the Seoul National University and younger executives are less influenced by in-hiring practices on the basis of regional ties implies that an excellent academic background could overcome (somewhat) the potential disadvantages related to an executive's region of birth and that the extent of in-hiring simply has declined over time. We reasoned from these findings that the traditionalin-hiringpracticetends to diminish as the modernization process continues. As a corollary, we hypothesized that firms specializing in highly modernized industrial technology would exhibit fewer manifestations of preferential hiring of executives on the basis of regional ties than non-high-technology firms. Such a hypothesis was based on the premise that high-technology industrial firms would need to recruit engineers and other professionals with advanced technical training, and that executives of such firms would possess fewer family and regional ties to the owner than those in firms that are not high-technology oriented. To examine this possible relationship, we analyzed the characteristics of executives of firms that specialize in the manufacturing and design of electronics, chemical, and automobile products. The data revealed that the proportion of executives employed in high-technology firms who have either family or regional ties was not significantly different from that observed for all executives. This finding suggests that the extent of in-hiring of top executives does not vary with the type of firm within the Jaebol corporations. It is possible, however, that the expected merit-based universal hiring practice of high-technology firms is applicable only to technical personnel not among the executive positions we studied.8 A large number of top-level executives had long military and government careersbefore joining the Jaebol corporations. Many corporations have within their ranks several former generals who are graduates of the Korean Military Academy. This is primarilydue to the fact that Korea has been ruled by two presidents over the past 26 years, both of whom were career military officers and graduates of the Korean Military Academy. Also, a large number of high-ranking government officials are former military career officers. Consequently, former generals, especially those who are graduates of the Korean Military Academy, are in strategic positions for generating favorable relationships through their political ties. Moreover, since Korea has main8The characteristics of middle- and lower-level corporate personnel are not examined in this study. Hence it is possible that the patterns of in-hiring for such positions may be substantially different from those for top executives.

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Shin and Chin

tained large and powerful military forces over the past 40 years, the military has been an ideal training ground for future corporate executives in terms of management and leadership skills. So the observed substantial representation of the former military in the corporate executive ranks may also be a naturaloutcome in light of such historicaland organizationalcircumstances. Findings of the present study corroborate Kanter's (1977), Moore's (1962), and Taira and Wada's (1987) arguments of social similarity among the top managers of business corporations in general. The explanation behind such homogeneity undoubtedly is closely linked to trust and loyalty. As Mayhew (1968) argues, while in-hiring may not be the most egalitarian means of ascertaining trustworthiness before selecting employees, it may be the most cost effective. As a result, despite trends toward universalism, exploitation of already established social ties remains a successful and secure procedure for hiring executives. For Korean business corporations, these arguments are even more applicable. In the midst of rapid economic growth since the mid-1960s, accompanied by unpredictable changes in governmental economic policies, nearly all corporations were vulnerable from the outside. Thus, internal solidarity was vital to surviving these critical years.9 The results of both the presidential election in December 1987 and the election for the members of the National Assembly in April 1988 clearly signaled unprecedented levels of democratization within the ranks of government itself as well as in its dealings with the people. Such democratization could affect the Jaebol group in two ways. First, the shift from a growthoriented economy to a distributive justice-oriented economy could cause the corporations to flounder temporarily as they become subject to greater pressure from labor unions demanding reforms. Their legitimate claims would then have the force of government endorsement, if not its overt assistance. Second, the Jaebol group could become more similar to the Japanese "Zaibatsu," which operate in an environment relatively free from government intervention where corporate autonomy is the primary concern. In any case, the

91n comparison with American corporations, the distinction between ownership and management in Korean corporations is not as clear. Given the necessity of maintaining close (and often secret) relationswith the governmentand with various governmentofficials, a corporation owner must play an active role in all decisions, and even more importantly, he must personally approve the hiring and promotion of all of his major executives. Only thus can he guarantee that the corporation will remain solid despite unstable operating conditions. In such conditions, every decision carries political import and potentially disastrous consequences. Often there are arranged "marriages of convenience" if corporate security demands it. The son or daughter of a corporation owner may wed the son or daughter of an influential politician or of another corporation owner. For example, the son of the owner of Goldstar, Korea's number one electronics firm, married the daughter of the owner of a rival company, Samsung.

Social Affinity Among Top Managerial Executives in Korea

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recruitmentpracticesof the Jaebol group will change in some way. Democratization will allow Jaebol corporations the freedom to move toward more universalistic hiring practices, but it will not force them to do so. Korea's 5000-year history predicts that preferential hiring will prove to be a bit more tenacious than reform-conscious political activists are willing to admit.

APPENDIX

Table Al. The Value of "Jaebol Corporations Added as CumulativePercentage of GDP, 1973-1978a Year 1973 1974 1975 1976 1977 Cumulative number of 5 10 20 3.5 5.1 7.1 3.8 5.6 7.8 4.7 7.1 9.8 5.1 7.2 9.4 8.2 10.6 13.3 Jaebol 46 9.8 10.3 12.3 12.3 16.3

'Source: Jones and Sakong (1980: 248266).

Table A2. Mean age and Percentage Distribution of Executives by Position Number Position Chairman of the board Vice chairman of the board President Vice president Executive managing director Managing director Director Auditor Total Age 20-29 30-39 40-49 50-59 60 + Total 167 5 688 280 447 1010 924 241 3762 13 273 1416 1063 270 3035 Percent 4.4 0.1 18.3 7.4 11.8 26.9 24.6 6.4 100.0 0.4 9.0 46.7 35.0 8.9 100.0 Mean 58.2 57.4 52.1 50.7 48.2 47.1 47.2 51.3 49.2 Standard deviation 10.5 8.5 8.8 7.3 6.6 6.0 9.2 8.8 8.4

24

Shin and Chin Table A3. Distribution of Owners by Regional Origin and Corpora tion Rank Region Seoul Joongbu' Youngnamb Honamc Ibukd Other Total 1-25 3 7 11 2 2 0 25 26-50 4 5 5 2 8 1 25 Corporation rank 51-75 76-100 4 3 7 7 7 5 1 4 6 6 0 0 25 25 Total (Wo) 14 (14.0) 26 (26.0) 28 (28.0) 9 (9.0) 22 (22.0) 1(1.0) 100 (100.0)

'Central Korean peninsula: Kyungki, Kangwon, and Choongchung provinces. bSoutheasternKorean peninsula: North Kyungsangand South Kyungsang provinces. cSouthwestern Korean peninsula: North Junla and South Junla provinces. dCurrently North Korean provinces.

Table A4. Percent Distribution of Executives by Regional Origin vs. Population Distribution of Korea in 1975 Region Seoul Joongbu Youngnam Honam Ibuk Other Total Executives 28.1 22.6 28.8 8.0 11.7 0.8 100.0 Population 19.8 29.9 30.5 18.6 1.2 100.0

Table A5. Percent Distribution of Executives by Regional Origin and Corporation Rank' Region Seoul Joongbu Youngnam Honam Ibuk Other Total 1-10 33.5 18.0 41.4 2.2 4.5 0.4 100.0 1-25 31.5 22.9 33.4 5.7 6.1 0.4 100.0 Corporation rank 51-75 26-50 22.5 22.9 19.1 25.7 27.7 31.0 12.1 6.4 14.8 16.2 1.1 0.5 100.0 100.0 76-100 28.0 22.3 24.6 8.2 15.5 1.4 100.0

'Based on corporation sales in 1978.

Social Affinity Among Top Managerial Executives in Korea

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ACKNOWLEDGMENTS The authors wish to acknowledge the helpful comments of Elwood D. Carlson,Paul DiMaggio, JamesA. McRae, PatrickD. Nolan, John V. Skvoretz, and three anonymous referees for Sociological Forum. REFERENCES

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