Hyundai chairman free during appeal
Hyundai Motor Co. Chairman Chung Mong-koo, who was handed a surprise three-year jail term for high-profile corruption, won’t be donning prison garb anytime soon and for now remains in control of the troubled automaker.
Chung, convicted Monday of embezzling the equivalent of more than $100 million in company funds, plans to appeal the ruling, a process expected to take six months to two years. He will be free during that time to run the company.
He must use that window, analysts say, to reform an organization beset by an authoritarian management structure, chronic labor troubles and the need to better compete in overseas markets with Japanese competitors.
“Chung has to make the management system change,” said Yong Dae-in, an auto industry analyst at Goodmorning Shinhan Securities in Seoul, emphasizing that Hyundai Motor must become more decentralized and less dependent on him.
The weakness of Hyundai’s top-down operating style came into focus in April when Chung was arrested, jailed and grilled by prosecutors for two months before being allowed back into the boardroom after his release on bail.
During that time the company, along with affiliate Kia Motors Corp., floundered as decisions related to overseas factories were delayed and problems with its strike-prone labor union festered.
Shares in Hyundai initially fell more than 3% on the news of Chung’s sentencing before recovering to close flat as investors realized that the fallout would probably be limited.
“He’ll still be able to run the company,” said Anthony Moon, an auto analyst at Nomura International in Seoul. “I don’t think there will be any immediate impact.”
Hyundai moved quickly to underscore that impression.
The company issued a statement shortly after the verdict saying that Chung retained “full operational control and decision-making authority” and that Hyundai’s domestic and overseas operations “will continue to function as normal.”
Hyundai and Kia together account for more than 70% of South Korea’s vehicle exports. And autos make up about 5% of the country’s exports and employment.
Such a high-profile case led observers to expect that the Seoul District Court would allow Chung to escape with a suspended sentence, meaning he would not be required to serve time.
But presiding Judge Kim Dong-oh said Chung deserved prison for “clearly criminal acts;” prosecutors had sought a six-year sentence.
Chung was convicted of illegally raising a $110.4-million slush fund from affiliates. The court said he spent about 70% of the total for private and other purposes, including payments to lobbyists seeking government favors.
