Hyundai Offers Funds as Probe Deepens

The decision by the Hyundai Kia Automotive Group to donate its entire stake (60%) in Glovis owned by Chairman Chung Mong-koo and his son, Chung Eui-sun, is a desperate countermeasure against increasing pressure from the prosecution.

Also, another underlying purpose of the decision is to ease public criticism and indirectly solicit leniency for the chairman and his son through donating private property of the chairman family.

The biggest headache for Hyundai Automotive Group is that it is not sure about what the prosecution wants to do about punishing the chairman and the son, which could affect the management of the group.

“To Ease Controversy over Illegal Power Transfer”-

The core of the announcement by the Hyundai Automotive Group was that Chung Eui-sun and Chung Mong-koo would donate their entire stake in Glovis to a social welfare foundation. Currently Chung Eui-sun owns 31.9 percent stake, and Chung Mong-koo owns 28.1 percent.

Glovis is the Hyundai affiliate at the center of the controversy over slush funds and the illegal transfer of management rights. Against this backdrop, the donation of the entire stake in the affiliate to society is aimed at defusing the controversy.

An official of the Hyundai Automotive Group said, “The amount doesn’t matter. The decision is aimed at fundamentally resolving the issue of profits from Glovis shares which have been criticized by the public as illegal transfers of management rights.”

Publicizing the decision to donate the private property of its chairman and his son, the group said it would set a specific schedule for the donations later. But it also said regarding a sharp fall of the price of Glovis stock, “If the stock price drops when they donate their shares, we’ll add cash or other shares owned by the chairman’s family to make the amount of the donation one trillion won.”

In addition, as it lowered buying prices from its partner suppliers this year to reduce costs, the group is reviewing measures to compensate or support its partner companies.

Effects of mimicking Samsung-

In many ways, the group’s announcement is similar to Samsung Group’s social contribution announcement in February.

Both groups decided to donate private property of their chairman families, their key executives bowed when a letter of apology was read, and both groups came up with job creation as a countermeasure for controversy.

Hyundai’s plan to “enhance transparency in the decision-making process by establishing an ethics committee which consists of outside directors and experts” resembles Samsung’s plan to form an “association monitoring Samsung.”

But unlike Samsung, which presented a detailed plan after Chairman Lee Kun-hee deliberated for five months during his stay in the U.S., Hyundai just offered a big picture, saying that the details would “come later.”

The situation is far more desperate for Hyundai whose chairman and his family are expected to be summoned soon.

Mixed Reactions-

Economic organizations, such as the Federation of Korean Industries and the Korea Chamber of Commerce and Industry said in a statement, “We hope that the public will warmly accept the decision. The investigation needs to be wrapped up soon so that Hyundai Motor Company will not lag behind in its competition with global auto industries.”

A senior executive of a large conglomerate said, “The timing is not good.” An executive of another conglomerate worried, “This will put other corporations under bigger stress to make social donations.”

The People’s Solidarity for Participatory Democracy criticized the move in a statement, saying, “A series of social donation announcements by offenders are aimed at buying the ‘rule of law’ with money, which is very inappropriate.”

Hong Jin-pyo, the policy director of Citizens United for Better Society, said, “The money that corporations must use to invest and hire should not be given to society due to pressure.”

Sung-Won Joo Jeong-Hun Park swon@donga.com sunshade@donga.com