Hyundai’s Iron Ajumma

Updated 9/14: The Chosun Ilbo reports that anti-Unification Minister Chung Dong-Young intervened with Hyun, possibly in an attempt to have Kim Yoon-Kyu reinstated, but that his differences with Hyun were “wide.” Chun is not denying that he’s trying to cobble the NK-Hyundai partnership back together, according to this Joongang Ilbo piece:

“The government has responsibilities,” pool press reports from Pyongyang quoted him as saying. “In principle, this is a business relationship between a private company and North Korea, but the project has cost our government sacrifices, assistance and tax money. We will have to raise the matter with the North Koreans.”

Those sound like the words of a controlling shareholder. Hyun may have had the same reaction, because the matter appears to have turned “hostile” thereafter. It adds some credence, if not evidence, to the tax-extortion claim (see bottom of this post), a tactic this government hasn’t been above using in the past. Hardly a comfort for investors, if true.

The Joongang story also throws some cold water on the N. Korean offer to Lotte:

It appears that Seoul does have considerable standing “• and clout “• to mediate. South Korean law gives local companies what amount to monopoly rights in North Korean projects, and Lotte Tours would not be allowed to start a tour project if it interfered with Hyundai’s prior claim to that business. “The government will not approve a case that is in violation of business ethics,” a Unification Ministry official said.

For the record, this would be the first documented case of the Unification Ministry caught in possession of more than half an ounce of business ethics, and with intent to distribute.

You don’t have to agree with Hyun Jeong-Eun’s views on changing North Korea through bribes, aid, and carefully controlled trade to admire the woman’s character. When her husband jumped to his death as a result of yet another financial scandal involving the North, Mrs. Hyun inherited the group’s chairmanship. She assumed those duties with a determination to finish what her husband started. The same stubborn character appears to have soured Mrs. Hyun on the methods to which fellow executives resorted to stay on the North Korean regime’s good side.

The first sign that Mrs. Hyun would not bend to the situational ethics of engaging North Korea came when she fired her vice chairman, Kim Yoon-Kyu, over reported financial irregularities. Now, the story of her refusal to be corrupted by the North is starting to come out, from no less a source than Ms. Hyun herself, via the company Web site:

Hyun said the two sides had come to a watershed where they must decide whether to continue with the tourism projects. The chairwoman, who was the prime mover behind Kim’s ouster, said that she could not decide the matter on her own as the projects were not only the lifetime projects of the group’s late founder Chung Ju-yung and her late husband Hyundai Asan chief Chung Mong-hun, but also “projects of the unification earnestly desired by the whole people.”

“Last time I visited the Kumgang Mountains, I was even forced to open my handbag, but despite the contempt, I thought of only one thing,” she wrote in the statement posted Monday. “There are people who have given their lives for the project” — a reference to her husband’s suicide — “so that insult was nothing, and I will not give up.”

She didn’t say exactly what caused her to fire Vice Chairman Kim, who recently met with Kim Jong-Il in Pyongyang, but it must have been pretty bad:

The vice chairman’s corruption “went beyond personal improprieties and was becoming a fatal flaw in the integrity of the entire corporation, and it was a grave decision taken so that there would be no doubt cast on the ethics of the projects we pursue in the future,” Hyun wrote.

The people of North Korea, as well as Hyundai’s shareholders, will be better off that someone had the spine to deny Kim Jong Il the run of the corporate coffers. As Mrs. Hyun puts it in an editorial that perhaps loves Mrs. Hyun a bit too much, “I’ll choose honest conscience rather than opportunistic servility.” The editorial also draws some unflattering comparisons to the government’s own behavior that merit a reading of the entire piece. For a different take, the Joongang Ilbo suggests that it might have been a simple boardroom power struggle.

And the North Korean reaction? They’re offering Lotte the honor of hopping into Kim Jong-Il’s bed, which drew awkward ambivalence from Lotte (the Joongang Ilbo reports that Lotte is “seriously studying” the proposal, although the report leads me to believe that Hyundai could opt to enforce its exclusive in the courts). Hyundai and Lotte are not the only corporations for which the North has lost its luster, either:

The poll by the Korea Chamber of Commerce and Industry (KCCI) of 500 local manufacturers announced Tuesday saw 70.6 percent expressing confidence that Pyongyang means to open up economically, but only 14 percent said they want to do business in the North.

Of the vast majority that had no intention of heading North, 61.6 percent said North Korea lacked any sectors where they could do deals, 23.5 percent said the Stalinist country was simply not attractive, and 12.8 percent said infrastructure and level of development were insufficient.

So much for blaming North Korea’s problems on sanctions. Here’s what I said on the prognosis for economic engagement last year:

As long as North Korea can continue to get wealthy but gullible investors and diplomats to hand over bundles of cash, it will continue to promise them that their investments will be richly rewarded. And it will just as surely continue to stiff them.

I’d also be interested in seeing whether the Chosun Ilbo can back this up:

What North Korea is trying to do by offering the Kaesong tourism project to another South Korean corporation is drive a wedge between South Korean businesses. One wonders, then, if an oddly timed investigation by the National Tax Service of Hyundai Elevator, Hyundai Group’s de facto holding company, is not another flank in the North’s attack on the group.