BMW gives Korean Air lesson on governance
Former Korean Air Vice President Heather Cho, left, is the eldest among three children of the carrier’s Chairman Cho Yang-ho, who had made her fast climb up the corporate ladder before being forced to resign over a “nut rage” scandal. Harald Krueger, BMW’s CEO-designate, started as a trainee with no family ties and has reached the top post of the German automaker by proving his worth along the way. The contrasting paths the two have taken on their career gives pause for thought about how chaebol can best deal with their governance issues, which experts say is the cause of the “Heather disaster.” / Korea Times files
By Park Si-soo
Korean Air is part of a family-controlled conglomerate or chaebol, while BMW is a German version of a company in which a family has a controlling interest.
However, the two couldn’t be further apart from each other in terms of corporate governance as was shown with the “nut rage” fiasco involving Heather Cho (a.k.a Cho Hyun-ah), the eldest daughter of the flag carrier’s Chairman Cho Yang-ho.
The 40-year-old Heather Cho had been groomed as her 65-year-old father’s successor before she turned into the butt of jokes around the world over her misbehavior.
She and her two other siblings have an equal stake in the company, and with the chairman not yet fully decided on his replacement, this has triggered fierce competition among them.
One way to explain Heather Cho’s ill-considered deeds is that she is conscious of the Confucian tradition by which a male child inherits a family business. Her younger brother also works for the company. She has shown behavior typical of someone born with a silver spoon in their mouth.
In contrast, BMW recently named 49-year-old production executive Harald Krueger as the successor to CEO Norbert Reithofer, starting from May.
The CEO in waiting joined the automaker in 1992 as a trainee, working his way to the top of the corporate ladder of the 98 year old company. His 11 predecessors have also been professionals without direct ties to the Quandt family, which owns a 46 percent stake of BMW.
Business experts say independent management was key to making BMW what it is now.
“With no intervention coming from the owner family, BMW CEOs can concentrate on management issues, and maintaining the firm’s growth,” a BMW official said.
“Had the company been directly controlled by an owner family, it is uncertain whether BMW would have reached the status it enjoys today because owners turned CEOs might have found themselves distracted at work by issues related to their ownership,” an industry source said.
Korean Air is owned by Hanjin Group led by Cho Yang-ho, the son of the firm’s founder; he controls the company with a 15.49 percent stake.
His three children ― Heather, Won-tae and Hyun-min ― hold less than 2.5 percent each.
One of those three will likely become the chairman’s handpicked successor, a typical leadership transition seen at family-run conglomerates in Korea.
“Perhaps the recent nut rage incident was one of the dismal side effects of such a dynastic leadership succession,” said Kim Sang-jo, a business professor at Hansung University and chief of the People’s Solidarity for Economic Reform. “With chances of landing a top seat guaranteed, they may not feel any guilt looking down on employees of their father’s company and treating them like their servants.
“This is a feudal form of employer-employee relationship that should disappear as early as possible.”
A bigger problem, he pointed out, is that the dynastic succession could lead Korean Air to fall into the hands of what he described as an “unqualified” leader.
“Cho will choose his successor from a limited pool of candidates or out of his three children,” the professor said. “Nothing wrong would happen if there is a qualified person among the three and the chairman makes the right choice. If it’s not the case, however, his selection would usher in a tragedy. It’s a very risky deal.”
Analysts say none of the three children have proven themselves to be able to well control Korean Air.
“It’s too early to point out a specific person outstanding among the three,” said Park Eun-kyung, a senior analyst at Samsung Securities.
The chairman’s oldest child, Heather, 40, was bombarded with public criticism for her misbehavior on an airplane last week. She quit the company as senior vice president, Wednesday, one day after she resigned from positions linked to the airline's cabin service.
His second child, Won-tae, 39, serves as executive vice president of Korean Air, and focuses on business and sales strategies.
The chairman’s youngest child, Hyun-min, is relatively scandal-free, but the popular opinion is that she is not capable of leading Korean Air.
A Korean Air spokesman didn’t comment on the issue.