Daewoo Founder Makes American CEO Scandals Look Minor League
By Steve | June 01, 2006
In a scandal of incredible magnitude, Kim Woo Choong, founder and long time CEO of the giant Korean conglomerate Daewoo, was convicted this week of fraud and embezzlement.
According to a New York Times story, the presiding judge wrote in his verdict: "A severe punishment is inevitable for Mr. Kim because he abandoned corporate ethics and circumvented the law, pushing Daewoo Group to bankruptcy." The detailed list of issues includes helping to falsify Daewoo's books to inflate its assets 41 trillion won. This is roughly $43 BILLION US dollars at today's exchange rates.
The penalty is also fairly substantial. Ten years in prison for the frail 69 year old, and a forfeiture of $23 BILLION US dollars.
The amounts boggle the mind. But Daewoo was South Korea's leading company, at one time accounting for 10% of the nation's total GDP. (To get a sense of this scale, that is roughly the same percentage accounted for by Exxon Mobil, Wal-Mart, General Motors, Chevron, and Ford--America's five largest companies by revenues.) As leader of Daewoo, Mr. Kim was one of his country's heroes. Daewoo's failure was a huge blow to Korea--the fact that misdeeds were at the heart of the failure clearly struck a chord.
How did such an icon fall from the pinnacle of power? There were probably many reasons, but Mr. Kim's ability to rationalize was surely one of them. He tried at least two common rationalizations in his defense. The judge didn't buy them, noting that Mr. Kim tried "to justify them [his actions] by describing them as management decisions and as part of a widespread practice of his times." So neither the South Korean judge nor the Enron jurors cared much for the "everybody else was doing it" defense.
As for the other rationalization? Ethics Officers routinely hear "That's not an ethics issue, it's a business issue." The Daewoo case has 43 billion more reasons why red flags should go up when we hear it . . . .