As global investors scrutinize South Korea’s plan to boost corporate valuations, they note a key hurdle — the prevalence of family-controlled businesses, or chaebols, which are often blamed for keeping stocks undervalued.

From Samsung Electronics to Hyundai Motor, South Korean conglomerates are run by members of the founding families who can wield outsized power through complex cross-shareholdings. The controversial structure and a tendency to sideline minority shareholders are among reasons why South Korean firms have traded at a much lower valuation than overseas peers for years, resulting in a phenomenon that investors call the "Korea Discount.”

Officials in Seoul are taking a cue from Japan, where a push for corporate reforms has been one of the key drivers for a world-beating equity rally. Yet the lukewarm market response to South Korea’s "Corporate Value-up Program” this week showed that the efforts are falling short of firmly addressing poor governance.