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Sunday, February 04, 2007

Hyundai Chairman Sentenced to 3 Years for Embezzling

Chung Mong Koo, the Chairman of Hyundai Motors and son of founder Chung Ju Young, was sentenced to three years in prison in South Korea for setting up slush funds to woo political favors and embezzling.

Given the economic power of Hyundai many analysts expected the chairman to get a suspended sentence, but the courts took a stern and brave course and decided to send the chairman to jail for his micro managerial hand that brought his own admission that he had helped set up slush funds in the automotive conglomerate.

Hyundai is the number six auto manufacturer in the world and investors did not waste time discounting its value by 2.44% after the sentence amidst concerns that the absence will leave a managerial power void in the centrally run conglomerate. 

The courts had hoped that a strict execution of the law would be necessary to clean up some of South Koreas anti-market business practices.  That could be true, but the removal of the chairman will probably also force many Asian conglomerates to reconsider their centralized power and control schemes that leave the head of the company exposed during a scandal and the company exposed when leaders are removed.  The alternative however means that conglomerates will have to build trust with stakeholders and learn to do business more transparently, which will be a tough lesson for the wild west markets of Asia.