Confucian Management at Hyundai
By Lee Chang-sup
Business Editor
Korea Times
March 28, 2001

With the death of Chung Ju-yung, Korea bids farewell to the first- generation tycoons and Confucian-oriented management style, with the sons of these tycoons running their business empires under an Anglo-American management system.

The Hyundai group founder's achievement and lifestyle can not be understood without studying the main features of Confucianism.

Every behavior and attitude of the late Chung can be explained from a Confucian perspective.

As the eldest of eight sons and a daughter from a poor family in Asan, near the North's Mt. Kumgang, he took care of his family.

The late Chung helped his brothers run their own mini-groups. In-yung founded Halla, his second youngest brother, Soon-yung, is chairman of the Sungwoo group, Se- yung heads Korea Development and Sang-yung is chairman of the Keumgang Group.

In keeping with Confucian tradition, he also allocated his wealth to his sons. The eldest living son Mong-koo is chairman of the Hyundai-Kia Motors group. Mong-kun is in charge of Keumgang Development, including Hyundai Department Store.

Mong-hun is running such units as Hyundai Construction & Engineering, Hyundai Merchant Marine and Hyundai Electronics.

Lawmaker Mong- joon is the largest shareholder of Hyundai Heavy Industries. The other sons Mong-yun and Mong-il are also running financial companies.

All in all, the brothers and sons of the late Chung are running business units that boast of an aggregate turnover of 130 trillion won, larger than the nation's annual budget.

The late Chung's management philosophy is also deeply rooted in Confucianism. He ran the Hyundai empire under a superior-subordinate relationship. Unquestioned obedience was expected of workers.

Thus the views of the man at the top were the most important factor in running Hyundai. In Chung's prime time, it was unthinkable for managers to go home until their superiors had left.

Like a big family, profitable units provided help to the conglomerate's poorly performing affiliates. Trading among Hyundai subsidiaries and cross- payment guarantees were common.

Mutual trust was more important than a written contract. Thus Hyundai executives scoffed at a legal network of contracts.

Members of the Hyundai kingdom wear blue jackets like soldiers in military uniform.

Confucianism is also tainted with an overtone of nationalism.

The late Chung seldom invited foreign partners to create joint ventures. Although foreign firms were invited in running Hyundai, they played a minor role.

The late Chung also insisted on localization of technology.

Instead of buying foreign technology, he tenaciously pursued Korean know-how. Hyundai Motor is a prime example.

In Confucianism, frugality, diligence and religious belief in attaining a goal were emphasized. Throughout his 86 years of life, Chung was a paragon of such traits. Although he was one of the richest men in the world, he had worn a pair of shoes for 22 years. His living room was modest. His lifestyle was that of a common man.

As long as employees are diligent and dedicated to attaining a goal, the late Chung guaranteed them lifetime employment.

According to Confucian tradition, he regarded employees as family members as well as subordinates and never tolerated challenges in the form of strikes.

In running his business empire, he always thought of contributing to make his fatherland strong and wealthy. He dedicated himself to constructing the Seoul-Pusan Expressway and the Soyang multi-purpose Dam. He mobilized all Hyundai resources to ensure the hosting of the 1988 Seoul Olympics. He initiated the Mt. Kumgang project, out of his belief that this would trigger an ultimate unification of the divided Korea. Hyundai adopted an export-first policy, which is, according to his belief, a sure way to make Korea rich and strong.

Unlike the Anglo-American business model where individualism and performance are prioritized, the late Chung pursued his empire in accordance with East Asian communitarian corporatism whereby deputies implement decisions made at the top.

The primary reason behind his success in running shipbuilding and heavy industries was his family-oriented management system.

In shipbuilding and manufacturing heavy machinery, teamwork and joint efforts are crucial factors for success.

Unlike Daewoo group founder Kim Woo-choong, the late Chung seldom took over established companies and founded all of Hyundai's subsidiaries.

Whether he liked it or not, he was part of the business-politics collusion, one of the major traits of East Asian culture.

Two years ago, he went home to the North, taking with him 500 heads of cattle. When Chung was young, cattle were the symbol of wealth of each family. By donating cattle he raised to the North where he was born, he demonstrated to his hometown people that he came home rich decades after he left to avoid hunger.

But now the Korean economy, politics and social environment have outgrown Confucian traits in this age of globalization and the neoliberalism.

Korea is now moving toward the Anglo-American economic model.

"Fleet- style'' corporate management is no longer tolerated.

Under fair trading rules, one subsidiary is barred from subsidizing sister companies. Legal contracts and transparency are given priority over unwritten verbal commitment. Mergers and acquisitions are commonplace. Maximizing shareholder rights is the top priority in running management. Lifetime employment is replaced by labor market flexibility. Top-down centralized management style gives way to decentralized and democratic decision-making.

Individualism and performance are more important than unquestioned obedience and top-down order. Blind royalty is detested. Wall Street and Yoido Street investors, not corporate owners, make important decisions.

Diversification like an octopus moving its tentacles in all directions has become a burden rather than an asset. Making companies rich and competitive is more important than making a country rich and strong. Father-to-son wealth transfer is frowned upon. Business-politics collusion has become a crime.

The ongoing simmering feud between sons of the late Chung is not the root cause of the Hyundai group's current woes. The group is now in a painful transition to the Anglo-American business model away from Confucianism- oriented management.

The successful future of the Hyundai empire depends on how quickly and effectively the negative legacy of Confucian elements can be bulldozed away. Hyundai has become a victim of its own success.