Hyundai, Samsung differ in preparedness for probes
Behind the Scenes: Samsung vs. Hyundai Motor (1)
Samsung and Hyundai are Korea's largest and second largest conglomerates, but their differences do not stop at how they rank. The prosecution's current investigation into Hyundai Automotive Group has helped to underscore some of these differences. Both groups have been investigated for the same types of irregularities, yet one conglomerate had its chairman arrested while the other walked away without facing any formal charges. What led these two jaebeol to have such separate fates? In a five-part series, the Hankyoreh considers how Samsung and Hyundai are similar, and how they are different. - Editor
With the prosecution stepping up its probe into Hyundai Motor Group on charges of a series of illegal business practices, experts say that the swift investigation into the nation's second-largest conglomerate was made possible because of the financial group's weak ability to predict the inquiry.
On April 28, the Supreme Prosecutors' Office arrested Hyundai Motor Group Chairman Chung Mong-koo on charges of creating several slush funds as well as for breach of trust. The charges center on Mr. Chung's alleged stashing away of around 100 billion won (about 100 million dollars) from major affiliates to bribe officials and politicians for help in obtaining construction permits, reducing debts, and receiving other favors for its financially troubled affiliates. Mr. Chung's son, Chung Eui-sun, is also under investigation, though has not been detained.
Sources say the prosecution made swift inroads into securing proof regarding Chung's involvement in the allegations, including his personal notes, during its months-long covert investigation. "From what we have heard from those questioned at the Prosecutor's Office, the probe into Hyundai Motor Group was planned in December, well before any actual moves were made," a Hyundai official said. "But no one at the executive level had seen it coming until the last moment, letting all secret documents end up in the hands of the prosecution." The official asked not to be named.
Many observers ask what would happen if the prosecution should target Samsung Group, the nation's largest conglomerate, in a similar investigation.
"The prosecution would not dare to 'point its sword' at Samsung, the largest conglomerate in South Korea, and even if it does, the nation's most powerful group would notice the move in advance and work to minimize the impact," one industry official said.
For years, Samsung Group's Chairman Lee Kun-hee was similarly under fire for the group's illegal transactions, apparently made in a bid to transfer his wealth to his son. But legal actions by the prosecution, some critics say, move at a snail's pace. The difference between Hyundai and Samsung, some observers note, can be found in the intelligence-gathering disparity of the two giants.
Hyundai also has its own system under which each executive-level employee of Hyundai Group were obliged to submit the list of ranking judges, journalists and other government officials under influence. Since 2000, when the group was hit by an internal power struggle, the system was further reinforced in a sense of urgency that its public relations needed to be improved compared with other conglomerates.
Hyundai did not sustain its efforts, however, unlike Samsung Group, the observer said. "At one point, the group provided a monthly budget set aside for personal networking in order to maintain good relationships with government officials," a Hyundai official said. This plan was only in effect for six months, however, he noted.
Even if there is such a system, it remains in the rudimentary stage, the Hyundai official noted. "We do not have a centralized body to control the operation. Rather, Hyundai affiliates show reluctance in sharing intelligence with one another for fear of internal leaks," the official said.
By contrast, Samsung has built a formidable personal network based on its large capital and unrivalled intelligence-collecting capability. "[Samsung] has significantly reinforced its efforts to maintain a good relationship with the prosecution since Chairman Lee Kun-hee was indicted without detention in 1996 amid charges of maintaining a political slush fund," said an executive member of the group's restructuring headquarters office. "On top of the operation of each affiliate, the restructuring office has also made efforts to maintain personal networking with around 50 former prosecution officials," the official said. The rumors that Samsung bribed senior prosecution officials in return for influence-peddling in relation to the so-called X-file scandal, which involved the intelligence agency’s illegal eavesdropping of conversations between the Samsung chairman and his cadres, could also be regarded as part of the restructuring office's efforts, he added.
It is no secret that Samsung pulls certain strings regarding the promotion of ranking government officials. A former member of the Financial Supervisory Commission (FSC) acknowledged only semi-jokingly that the FSC is largely divided between the "[internal] promotion class" and the "vocational training class." The internal promotion class refers to a group of ambitious ranking officials seeking rapid promotion by gaining some brownie points from Samsung, while the vocational training class is filled with those looking for employment with Samsung after retiring from the FSC, according to the former member.
A lawmaker who last year dealt with regulations concerning Samsung makes a similar confession: "As soon as I took up some issues with Samsung [in the National Assembly], I was visited by a close relative of mine who complained that I was ruining his career at Samsung. The lawmaker said he could not help listening to his relative's plea as the man was so desperate to keep his job. "Pressure came from all different directions, to a point where I felt threatened. Not only my school alumni and longtime associates but also fellow political party members all tried to stop me. You will never know how I felt during that period unless you were in my shoes."
It is widely known that each lawmaker from the ruling Uri Party is "marked" by one Samsung executive. According to a source from the ruling camp, influential party leaders or those holding important posts are on the watch list of multiple Samsung executives. The situation is hardly different with the opposition camp. Lawmakers often face pressure and ostracization from colleagues if involved in "anti-Samsung activities." Given the stress placed upon harmony and hierarchy in Korea's political system, lawmakers feel obliged to respect "advice" from party leadership or seniors. Under these terms, politicians who turn their back on Samsung's interests see their career advancement blocked, some experts note.
In contrast, Hyundai's poor management of political networking and social connections has surfaced during the latest investigation of the automobile giant. In fact, a host of Hyundai's executives have maintained personal ties with ranking Blue House officials as well as high ranking prosecutors, but such connections were only loose and have failed to garner any influence at critical times, observers say. According to one Hyundai executive, Chairman Chung Mong-koo felt so anxious about the recent investigation that he ordered all Hyundai executives above the vice presidential level to report to their contacts daily.
When the situation is ripe for all-out lobbying efforts, Samsung bestows almost unlimited decision-making power to its executives dealing with external relations according to sources. Emergency management cases are categorized into two levels: ones that should be handled by each subsidiary and ones that require a concerted effort by all subsidiaries concerned. A Samsung executive confessed to some extreme cases in which the government official in question was removed from his post as a result of anonymous whistle-blowing by Samsung.
Samsung's external relations often results in the twisting of regulations in order to obtain leniency from law enforcement institutions. Last year, former vice chairman of FSC Lee Dong-gul stated that a set of financial supervisory policies in Samsung's interest are undermining the nation's financial policy framework. He cited as prime examples Samsung's violation of a financial industry restructuring regulation, Samsung Everland's window dressing practices and Samsung Life Insurance's illegal manipulation of stock bottom lines. "The government applies strict punishment to small players, but it is 'generous' enough to close its eyes to irregularities committed by some of Korea's large conglomerates," Mr. Lee said, "thus making the government and the principle of law less trustworthy."
