Cheating CEOs

The Korean mobile phone manufacturer VK went bankrupt in July 2006 due to financial troubles. VK CEO Lee Chul-sang, a former activist who was once head of Seoul National University’s student council, said, “I apologize to VK’s shareholders, employees, suppliers and banks for these problems.” Many were disheartened by the failure of the former student activist, who was also the pioneer of the country’s venture renaissance.

People were shocked again after Lee was arrested in January last year for a number of charges. Two months before VK filed for bankruptcy in April 2006, Lee concealed the firm’s dire situation, conducting a paid-in capital increase and embezzling 9 billion won (7.6 million U.S. dollars), prosecutors said. In 2005, he illegally received subsidies worth 1.8 billion won (1.5 million dollars) to relocate his company to a provincial area, while embezzling 1.3 billion won (1.1 million dollars) by setting up a paper company. Prosecutors said Lee caused more than 30 billion won (25.5 million dollars) in losses for VK. The doctrine of CEOs never failing even though they fail their companies lingers in Korea because CEOs like Lee cheat on legal settlements but never get caught.

Newsweek magazine recently released a list of seven CEOs who resigned with a tremendous fortune after failing their companies. Former Pfizer CEO Hank McKinnell received 122 million dollars in retirement compensation plus 78 million dollars in additional money for a cool 230 million dollars. Former GM CEO Rick Wagoner, who was also president of GM Daewoo, and ex-HP CEO Carly Fiorina were also on the list.

Following the global economic crisis in 2008, the world is reconsidering market fundamentalism and casino capitalism that have prevailed since the 1980s. Though socialism is not an alternative since it has been proven to increase poverty and oppression, Western-style capitalism has also shown its limits. Society must not tolerate the bad attitudes of CEOs who focus on just short-term performance and downsizing while raking in tremendous amounts of compensation, bonuses, stock options and retirement benefits. A self-control market economy is needed to function properly. Anyone with power, money and reputation should never take them for granted and must have the proper sense of responsibility.

Editorial Writer Kwon Sun-hwal (shkwon@donga.com)