In Bloomberg, William Pesek looks at recent cases of whistleblowing in Korea and Japan. I can only hope the Samsung probe doesn’t turn into Korea’s “Enron Moment,” because if Samsung goes the way of Enron, we are all truly fucked. (HT to reader)
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That’s the kind of thinking that ultimately afflicts even the most ostensibly progressive elements of Korean society (except the lunatic fringe that wants to joins their brothers in the North in the solidarity of scavengers in the rubbish heap of history) and has fatally compromised all efforts as truly significant reform in Korea. It’sd the mentality that underlies many of the reasons why in the long run Korea will fail.
“The real question in Korea is whether Samsung would be punished if found guilty. In recent years, the convictions of chairmen of Hyundai Motor, Hanwha and SK made banner headlines. Yet they all received suspended sentences and are still running the companies.”
Indeed.
i think “fucked” needs more definition here. i would like to see Samsung get its due for this. i would like to see people go to jail as well. but that isn’t gonna happen because too many people also subscribe the to abstract notion that if this were to happen everything would be “fucked”—but if this means things turning out more equal and just, then isn’t it okay to suffer awhile for better days?
Word, Sperwer. Word.
Let me try more definition: regulations is always a moving target. Unless a government goes fully laissez faire (say, flat tax and fully open labor, capital and product markets) then there will always be people scheming for ways to profit from loopholes.
Among many causes of the tech bubble of the 90s was accounting firms helping big clients cook their books by acting as ‘consultants’ rather than accountants. Sarbanes Oxley bandaged that wound.
Among many causes of the current troubles (now called sub-prime, but it’s deeper than that) is the ratings agencies assuming way too much in their models. No bandage for that yet.
There will be another crisis, another bandage, until the end of time. It’s the way that biz and gov’t play with each other.
What helps a market like the US survive these shocks is the breadth and depth of its whole financial and legal system, an entire economic infrastructure that is basically pretty damn good. The goal is free markets, the result is wealth.
In Korea, the goal is growth, but not by free markets. MOFE and MOCIE minister after minister gets up and says the government has a new plan to create growth. Wealth has resulted, but it is not credited to the market, it is credited to the government.
No breadth, no depth. No cushion in case of a crash. End of part I.
So does that mean that if the true state of Samsung’s finances were revealed and its stock price crashed that indeed we would all be fucked?
Not at all. Bring it on, the sooner the better. Samsung and most of the major export conglomerates are good cash generators. You can hide a lot under Korea’s accounting standards, but you can’t hide top-line cash.
But what do these companies actually OWN? What is one of their stocks really WORTH, in terms of the value of the company’s assets that underlie the stock? Who the fuck knows, is the answer. That’s my guess for why Korea’s M&A market is non-existent. For M&A to take place, you need to appropriately value a company. Korea’s pathetic excuse for a (developed, modern) accounting industry doesn’t allow that.
So, yes, there should be a huge correction in stock prices if the books of Korea’s companies were actually rewritten according to higher standards of transparency, and some rearrangements in ownership would take place, but the cash earners would continue, and there are many of them. End of part II.
Enron was beyond cooking the books : Enron didn’t have a viable business model and was bleeding cash by the truckload.
However, Samsung is a profitable company with a nice cash flow, as Linkd said.
Samsung will not collapse. The Korean economy will not collapse.
So, the real question is what will be the outcome be ?
A) Some big headlines in the newspapers, Samsung and Samil PWC execs in pajamas with I.V. drips, a few slaps on the wrist “in the interests of the national economy” (대~~한민국 !!) and business as usual ?
OR
B) A real chance to make some meaningful and much-needed reform ?
Given Korea, Inc.’s history and especially the completely spineless “Great Pretender” Roh, I give 9:1 odds on the former over the latter.
As for the linked-to article, it’s fit only to line the pan of my cat’s litter box. All of William Pesek’s examples to predict the outcome about Samsung are from Japan. Mr. Pesek spends too much space trying to look insightful by assuming Japan and Korean business cultures and practices are near clones.
Not.
Korea, Inc., is still far too nationalistic. Also, Korea’s economic crisis in 1997 isn’t called “IMF” (to turn a pin on its head) for no reason - Koreans blame foreigners for their economy’s ills.
However, Japan had to suffer through an entire decade of stagnation, deflation, and falling property prices, which was far too long to simply blame on an outside force. Hence, much-needed and very painful economic reform took place in Japan as a result.
Alas, Korea has not yet learned its lesson, and I doubt it will from this one case.
Actually, there is one other potential risk: The United States Securities and Exchange Commission (SEC). Samsung Electronics has a number of securities — stocks and bonds — floating around in the US under Rule 144A. Just because Korea is not interested in enforcing laws against Samsung does not mean that US securities regulators won’t take some form of action.
Even if Samsung goes the way of Enron, which I don’t think it will, Korea won’t be “fucked up”. Sure there will be some turmoil in the economy, but I don’t see it going on for years or dragging things down. IMO, I hope that this thing blows up really big, because this may be the only thing that will force those in power to institute much needed reforms.
I think it’s a bit of storm in a tea cup really, even if all the allegations made are true, looking from a historical perspective for the last half century or so in Korea. .
Although it would be a major scandal in a serious Western country, what Samsung allegedly did is not something very unusual in the country.
With all the headlines in the local papers, it cannot possibly be thoroughly investigated. Believing otherwise is like expecting Italy to investigate the Mafia thoroughly and clean up the country in a short period of time.
I just hope the Western media would treat the case as low key as they would do when Korean girls win LPGA tournaments.
The beginning of the article uses TI’s CPI index ranking to compare Korea with other nations, and to demonstrate worsening corruption in Korea. But, I’d caution against overelliance on the CPI. For one, the CPI country rankings are effected by having countries dropping in and out of the country list, because it requires countries to have 3 independent corruption opinion surveys to be included. Countries that only have 2 are dropped from that year’s list, which can affect rankings. Also, the CPI is an opinion poll about perceptions of corruption, and perception can be heavily influenced by the media. Media coverage of corruption and crime in general has been shown to have little relation to actual incidence of crime and corruption. For example, in the US in the 90s, while actual crime(which includes corruption) dropped, crime coverage rose (due to advent of cable news), leading to a rising concern with crime among Americans. I’ll bet that a Samsung corruption scandal, will likewise lead to plenty of press coverage and increased perception of corruption in Korea. To compare this scandal with previous corruption, for starters we need to know the scale of favors Samsung received. The challenge will be to find actual payments to officials, and delivery of favors. At that point we can actually make an assessment.
As I much I respect Pesek, on this one he just doesn’t get it. Samsung is no Enron, just as the ROK is no USA. The Samsung whistleblower is highly unlikely to go down in history as a Time person of the year - or anything remotely similar. Rather, after sucking up a large personal fortune, our “saw the Light Korean” has chosen to come clean just weeks before an especially pivotal presidential election.
Anyway, while the official ratings knock Korea down the international pecking order a few notches when it comes to corruption, those of us working here know the overall reality does not flux as much as NGO ratings may suggest It’s just more insidious, dirty Korean politics in operation yet one more time.
In spite of the overall size of the Korean economy and the individual chaebols, Korean companies and their surrounding economy remain stifled in a sort of commercial adolescence. The chaebol refuse to grow up, as they try to hang on to past practices commonly found within developing economies.
I respect what the Prosecutor’s Office is often trying to do on behalf of the economy, but in the end I suspect macro economic forces ultimately force companies and their governments to come to age by forcing, for example, the chaebols to manage through greater transparency that will lead them, as a survival strategy, to be more efficient and competitive on the world stage. In a more mature environment, even the Enrons are ultimately disciplined.
At the same time, the Government needs to consistently enforce appropriate laws and regulations. There needs to be an ongoing review of the current laws to ensure that they are reasonable and not responsible by their nature to encourage poor compliance by the business community. In other words, Korea needs well legislated laws that encourage competitive business practices by companies with consistent and, when appropriate, strict enforcement of these laws by the Prosecutor’s Office.
Until then, judges will need to act, as we have seen in the past, by accommodating misbehavior in open recognition of the need to protect society’s overall wellbeing, while tacitly acknowledging that many of the laws and regulations are impractical. All of which in turn, encourages continuing corporate misbehaviors as we see being uncovered with Samsung today and someone else tomorrow.
#10,
I’m not worried. I’m buying more stocks on Monday to take advantage of the mini-collapse of last week and the pre-election jitters.
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