The Hyundai scandal - Saying sorry is not the same as taking responsibility

By Chandran Nair

This column appears in the Ethical Corporation June 2006 issue.

COLUMN: Ethical Corporation: The Hyundai Scandal
Cash apologies do not equal corporate philanthropy

Sorry, it seems, is not the hardest word, as more business leaders and politicians are showing. In Asia's latest episode, business chiefs suspected of impropriety are pledging millions of dollars to assuage publc outrage at their apparent behaviour.

As Hyundai Motor’s chairman, Chung Mong-koo, sat in jail charged wth embezzlement and breach of trust, his family, which controls the carmaker, pledged US$1 billion to South Korean charities. (See Hyundai scandal: timeline below.)

American private equity fund Lone Star and South Korea's Samsung have also hadde charitable donations under the scandal shadow: Samsung $1 billion; Lone Star $105 million. At $2.1 billion in total, there represent enormous contrition.

Exceptional donations raise questions, especially whether cmpanies that blossomed under ambiguities should be allowed to continue in a similar vein if there are perceived benefits.

The public certainly isn’t buying it. Vocal Korean civic groups have condemned the donors for reportedly trying to bargain with the legal system. They are asking what this means about corporate perceptions of philanthropy. They are rightly concerned: philanthropy should not be used to negate public criticism, avoid criminal charges or to atone for misdeeds.

There is a long history, especially in Asia, of companies growing -- with tacit approval -- at the expense of the environment, or in a vacuum of social concern, or by applying creative accounting to dispense largesse.

Not all corporate philanthropy in Asia is on shaky moral foundations. But the extent to which companies profit inappropriately and then paper over past deeds with charity must be examined. At the crux of the matter is a confusion of corporate philanthropy and corporate social responsibility -- a confusion that has corrupted both.

Philanthropy involves working for the well-being of others without ulterior agenda, giving what you can afford. Corporate philanthropy thus puts resources that can be used without conflict towards helping needy people.

Social responsibility requires adhering to values and laws in return for the licence to create wealth -- which may be used philanthropically.

Companies or executives that flout the law and the ideals of philanthropic behaviour by buying indulgences can expect full legal and societal wrath. But not even the most senior executive can manage every last detail of an operation; the world demands pragmatism.

Asian business leaders must come to terms with two things: understand what is right, and learn what it is to be engaged with principles of greater importance than short-term bottom-line concerns and personal gain.

Some may argue Asia is only joining the world's game, or it is Asia’s turn to thrive with the same freedoms the west enjoyed and exploited to its present advantage. Others may demand Asian business be striped of everything deemed bad.

These are extreme views. The balance must come from government and strong, independent legal institutions that punish corporations that cross the line. In building these and other institutions, Asian societies must play their role. South Korea civil groups and legal institutions are clearly saying it is time to change. Now authorities must drive the point home. Without balance, shareholders and those in the need will be left in the lurch. And when business leaders are finally clear about their responsibilities, they will find they need never say sorry.


Hyundai scandal timeline


Korean authorities arreist a businessman on charges of taking bribes from Hyundai in exchange for lobbying policymakers on a number of business deals.

19 April

Hyundai apologises for the scandal and pledges to donate assets worth over $1.1 billion to charity.

28 April

Hyundai chaorman Chung Mong-koo is arrested on charges of embezzling $109 million and creating slush funds worth over $100 million to bribe officials.

16 May

Chung Mong-koo is indicted and faces up to life in jail.