Daewoo Debacle a Tale of Riches to Rags
(A Classic example of Chaebol, and its failure)
Submitted to: Prof. Jatin Christie By Sumita Banerjee Roll No. B-04
The Rationale of the choice of topic and the company
In 1999, the Daewoo Group, one of the biggest transnational conglomerates, collapsed, committing a staggering $15.3 billion in accounting fraud in the process, the largest in world history. In 2006, its chairman was sentenced to eight years in prison and a disgorgement penalty of $22.7 billion. Daewoo’s problems, however, did not remain a case isolated to Korea and their mighty, family-controlled conglomerates called “chaebol.” Daewoo’s demise foreshadowed corporate scandals that more recently ravaged confidence in financial markets around the world. Leading financial institutions, investment banks, securities analysts, accounting firms and credit agencies from around the world failed to address its problems. Despite its warnings, policy discussion focusing on the importance of reputational intermediaries and gatekeepers in particular has only recently emerged. The OD Paper deals with the history of Daewoo, a major chaebol, focusing on the implications of its vast corporate governance meltdown, internal corporate governance, particularly its controlling shareholder, boards of directors, officers, employees and banks. Furthermore, the external corporate governance landscape and the failure of reputational intermediaries, gatekeepers and public institutions are explored. It also traces how Korean companies have converged toward a more shareholder-oriented corporate governance model from a state-oriented model. Finally, the ineffective corporate governance system in place at the time of the Asian financial crisis provides a backdrop for the reforms that followed.
I. Introduction (Where was the Problem)
The Organization Development Paper provide an insight about the Internal corporate governance of Daewoo, particularly through its o Board of directors, officers, shareholders and banks. o The external corporate governance landscape: failure of reputational intermediaries, gatekeepers and public institutions. Corporate Restructuring At the end of 1999, one of the largest conglomerates in the world, the Daewoo Group, collapsed in spectacular fashion. A story of Riches to Rags About Daewoo (DEBACLE): During its peak, Daewoo was a sprawling enterprise with over 320,000 employees in 500 domestic and foreign companies that operated in over 110 countries. Its management received widespread praise and academic recognition for its success. Yet, when the financial crisis hit, it managed to commit 22.9 trillion won ($15.3 billion) and was termed the “biggest accounting fraud in history, surpassing WorldCom and Enron.” Soon the inner-workings of the conglomerate finally came to light. After hiding as a fugitive overseas for over six years, Daewoo’s chairman, Woo Choong Kim, returned to Korea in June 2005 to face criminal charges. In 2006, he was sentenced to eight and a half years in prison for a shocking 17.9 trillion won ($ 17.9 billion). This juncture serves as an opportune time to assess the ramifications of the Daewoo debacle.
Corporate Governance and its importance:
Corporate governance has emerged as a focal point in the reform of companies. In Asia, a consensus exists that failure of corporate governance played a pivotal role in precipitating the financial crisis. The tale of Daewoo, in particular, serves as one of the earliest warning signs of the corporate governance breakdown that later plagued leading companies around the world Daewoo, however, did not remain a case isolated to Korea. World-renowned, international financial institutions, investment banks, money managers, financial analysts, accounting firms and credit rating agencies, all failed to react to the situation. Daewoo’s meltdown was categorized as a remote problem in a faraway region....