Do South Korea’s cheabols have a death-wish? The news that Hyundai Motor, whose chairman Chung Mong-Koo is the son of Hyundai’s founder, spent $10bn on a snazzy new corporate HQ in the trendy Gangnam area of Seoul, was greeted with anger in South Korea.
Hyundai workers went on strike in protest, furious that depsite being told the firm was too cash-strepped to raise salaries, it had still paid more than triple market price for the new building. Worse, Hyundai is are expected to spend another $6bn renovating the new home. The purchase is said to be all about Chung's vanity, as he wants to leave his son a flashy HQ when he takes over the business.
Non-family shareholders were also unimpressed, and they punished the three firms involved in the deal, Hyundai Motors, Hyundai Mobis and Kia (which is one-third owned by Hyundai), by wiping a total of almost $8bn off their share values in one day. The only people happy will be those who own stock in rival chaebol Samsung, a failed bidder in the auction, although its involvement in the bidding war hardly suggests prudent leadership.
In a sense the owners of Hyundai Motors (which is one part of the wider, sprawling Hyundai group mostly controlled by the Chungs) won’t care what shareholders think. Their families’ positions are unassailable, and many of the shares are owned by their relatives, often through murky cross-holdings. But the deal will only galvanise policymakers who want to force the chaebols to be more accountable and transparent, and ultimately to break them up.
This vanity project only serves to broadcast the message that the chaebols are the wrong sort of family firm. Hopefully they can change. If they don’t, then they will assure their slow death by regulation. The best way for them to shore up their own futures is to become smarter, smaller, and more socially useful. But don’t hold your breath.