Can Hyundai's Chung Stay Out of Jail?

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Prosecutor Yoon Dai Jin told the High Court that Chung should be given a "severe punishment in view of enormous harm he inflicted to the company." Last year a lower court convicted Chung of illegally raising some $75 million of slush funds for kickbacks and of costing Hyundai Motor more than $200 million by transacting deals among affiliates that largely benefited the family at the expense of other shareholders.

Few question Chung has been crucial in building Hyundai Motor—which includes Kia Motors—from an also-ran into the world's No.7 automaker. Under his leadership, Hyundai has soared in quality surveys to rival Toyota (TM) and Honda (HMC). As late as the late 1990s, it was the butt of jokes on late night TV shows. Chung also acquired Kia in 1999 in a bid to benefit from economies of scale. On May 21, Kia announced plans to boost overseas sales 75% by 2010, to 1.9 million vehicles.

Time to Let Managers Run the Show

But a growing number of investors believe what the company needs most now is not Chung's top-down, authoritarian management style, but an injection of new talent, including recruits from the U.S. and other foreign countries who have local marketing expertise.

"I think it will be a matter of time for Hyundai to let professional managers run the show," reckons Ahn Young Hoe, chief investment officer at Seoul-based fund manager KTB Asset Management, which allocates some $200 million in Hyundai Motor shares. "I hold Hyundai shares because of its cost-cutting efforts and benefits from a weaker won, not because of Chung's leadership," Ahn adds, referring to a 10% fall in the value of the Korean currency (BusinessWeek.com, 3/23/08) against the U.S. dollar so far this year.

In a sign that other investors are also not very concerned about Chung, his trial has had little impact on Hyundai shares. Despite his legal battle, the stock has risen 20.1% so far this year against a 3.6% fall in the benchmark Kospi index during the period. Thanks partly to the weaker Korean currency and the introduction of the Genesis premium sedan, Hyundai posted a 17% jump in vehicle sales and a 28% profit jump in the first quarter of this year, when overseas buyers accounted for 58% of its overall sales.

Moon is BusinessWeek's Seoul bureau chief.