hankyoreh

By Park Seung-heon, staff reporter

Before bidding began on the Korea Electric Power Corporation (KEPCO) plot of land, the word in the market was that several executives at Hyundai Motor Group would be disciplined if the company didn‘t win the bid. This illustrates just how determined Hyundai Motor Group Chairman Chung Mong-koo was to build a single complex to house the group’s subsidiaries.

Hyundai bid 10.5 trillion won (US$10 billion) for the property in Gangnam district. Including taxes and other contributions to Seoul Metropolitan Government, the final purchase is estimated at a total of almost 15 trillion won.

But even after the group was awarded the KEPCO plot on Sept. 18, the same stories about discipline were making the rounds. Now, people were saying that the executives were in trouble since the group had taken a sharp loss by bidding too much for the plot.

Chung put an end to this talk at a meeting of company executives on Sept. 19, thanking the executives for their hard work. Nevertheless, the significance of the rumors that had been thick in the air cannot simply be dismissed. The opaque decision-making process at Hyundai Motor Group - where bold decisions by the owner and the perseverance of the chairman are still regarded as key principles for management - is prompting more concerns now than before the bid on the KEPCO plot.

“The fact that no one knows how the decision was made on the nonsensically high bid is a factor that in the long term will reinforce negative attitudes about the group,” said one securities researcher on condition of anonymity.

The group defended its bid as a far-sighted decision by the company‘s top executives that also made sense economically since it would eliminate the high rent currently being paid by group subsidiaries. However, this explanation was not convincing enough to assuage concerns.

Chung described himself as “relieved” that the group was buying land from the government, but this was met with the rebuttal that the government only controls 51% of KEPCO’s stock and that foreign interests hold a 28% share in the company.

Sarcastic barbs about the purchase circulated online. Some joked that the money spent on KEPCO‘s plot could have purchased five car companies, as well as Samsung Group Chairman Lee Kun-hee’s entire share in Samsung Electronics. Others suggested that Hyundai had mistakenly thought it was getting not just the plot of land, but KEPCO itself in the deal.

These comments demonstrate that the reasons Hyundai Motor Group offered for making a bid that was so much higher than the market demanded were unconvincing. At the moment, the group already has plenty of other major expenses - developing environmentally friendly vehicles, improving gas mileage, and responding to fluctuations in the exchange rate.

“The group does need to build a global business center, but the market was disappointed that it bought the land for much more than the appraised price,” said an analyst at one securities firm.

In the past, Hyundai Motor Group has often overcome obstacles through bold decisions by the chairman, who could be described as ruling, rather than managing, the group. The acquisition of Kia Motors and the construction of a factory in the US are examples of the owner‘s perseverance leading to success.

However, the fact that there are no guidelines for decision-making and that company staff depend upon Chung’s instructions at every important decision bode ill for the future of the company.

Even granting that this was a case in which security was paramount, it is surprising how little communication there was. Asked how much difference there was between the bid proposed by the working-level staff and the amount that Chung had had in mind, Hyundai Group executives said they had no idea and that they were surprised by the amount, too.

It is to be hoped that Hyundai Motor was paying attention when Kim Gi-sik, lawmaker for New Politics Alliance for Democracy, described the bidding process as “chaebol management” and “imperial management.”

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