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Verdict due on Hyundai Motor boss in closely-watched case

SEOUL - The verdict expected Monday in the embezzlement trial of Hyundai Motor chief Chung Mong-Koo could disrupt a drive by South Korea’s largest automaker to catch up with its global rivals, analysts say.

The case is also seen as a test of efforts to improve the corporate governance of the giant conglomerates known as chaebol which for decades have dominated the economy.

The Hyundai group is South Korea’s second largest business empire and the world’s seventh biggest automaker.

Chung, 68, is set to appear for sentencing Monday for alleged embezzlement and breach of trust involving the carmaker. He was jailed in April last year but was freed on bail two months later.

Prosecutors have demanded a six-year jail term, accusing Chung of embezzling 63 billion won (now 67 million dollars) through fraudulent accounting to bribing politicians and officials.

They suspect he used part of the money to ease the illicit transfer of corporate wealth and management control to his son.

The case ‘may pose a test for efforts to enhance corporate governance. Like other groups, Hyundai Motor has lots of work to do to achieve transparent management,’ Kyobo Securities analyst Lim Chae-Koo told AFP.

The Asian financial crisis of 1997-98 prompted South Korea to introduce new laws and rules aimed at cleaning up the chaebol.

There has been considerable progress in efforts to improve transparency in accounting, but economists say many conglomerates are still engaged in illicit activities.

Chung could face a life sentence if convicted on all counts but high-profile business leaders have often received lenient sentences in the past.

His defence lawyer has pleaded with the court to consider the impact on the economy of a heavy sentence.

In previous hearings, Chung apologized and begged for leniency, saying the company faces ‘a lot of difficulties.’ He also vowed to improve its corporate governance.

‘Hyundai Motor is now at a critical juncture. If Chung goes back to prison, it is certain to hurt the company’s image abroad, dealing a blow to its investment plans and decision-making process,’ Lim said.

Chung hopes to turn the company into the world’s fifth largest automaker by 2010 but the court case has delayed construction of new factories in Europe and the United States.

The Hyundai auto group controls more than 70 percent of the South Korean car market, but its competitiveness has been eroded by labor disputes and resurgent rivals. Strikes cost output of 115,683 vehicles worth 1.6 trillion won last year.

Net profit plunged 34 percent to 1.53 trillion won last year with sales slipping 0.2 percent to 27.34 trillion won due to the strikes and the won’s rise against the dollar, which makes exports more expensive.

Its stock slumped nearly 30 percent last year, wiping out 6.3 trillion won in shareholder value.