By Michael Breen
In a column here this week, Oh Young-jin, the city desk editor, argued that foreign companies whose business suffers because they fail to understand popular sentiment in Korea get what they deserve.
He cited the case of Lone Star Funds, singling out its chairman, John Grayken, for criticism for ``not knowing how to deal with Korea as a nation.''
On the surface, this argument makes sense. Every firm has a stake in how its actions are perceived. A firm that enters a market without analyzing such risk only has itself to blame if, like a swimmer diving into an empty swimming pool, it crashes to the ground.
But, to back his claim, Oh cites some incredibly flakey evidence. Once, for example, Grayken came off a flight to Korea from the U.S. wearing his tie loose. Oh ― pun intended ― and he was unshaven. And the point is?
Now, I don't wish to make light of Oh's viewpoint. He is a highly experienced reporter and has extensive knowledge of the foreign business community. He was also a former Blue House spokesman. We have been on different sides of this question, as I once had a business relationship with the firm. (I declare that interest and leave it to the reader to decide whether my conclusions amount to bias.)
Nor will I make light of the issue. When Lone Star got into trouble in 2005, its employees suffered an inordinate level of distress and the company's business was seriously damaged. Also, the case dealt the biggest blow in this decade to Korea's credibility as an investment destination.
But the flaw in the argument is that what is referred to as ``public sentiment'' in Korea is not the same as public opinion. It is something altogether more emotive, unpredictable and destructive.
Public opinion is usually varied, and debated, but ``public sentiment'' is a form of group hysteria. Sometimes it is predictable. If you open a comfort women bar in Seoul, you know what will happen. But it can also flare unexpectedly and furiously over minor issues, such as the resumption of U.S. beef imports.
When it does, government officials run for cover. They will do anything ― neglect their duties, break the law, make stupid decisions ― rather than go against it. That's why, as Oh pointed out, the unwritten law of public sentiment is considered greater than the law. Judges even refer to it when handing out sentences. The Namdaemun arsonist got a heavier sentence than most child abusers.
But, of course, it is not a law. The attempt to refer to it, albeit figuratively, as such is in fact a symptom of the mistrust of the law and underpins the confused idea that democracy requires us to follow the baying of the people who shout loudest in the crowd. But that is mob rule, not democracy. In a democracy, the law should protect us from the mob.
The peculiar difficulty for foreign business is that the Koreans they encounter ― the advisors, regulators, employees ― do not warn them clearly about the risks of public sentiment. You can go into most countries and get clear briefings. But not here. There is a shared conspiracy that amounts to denial. It is as if the lifeguards and other swimmers are all shouting, ``Come on in, the water's fine.''
When public hysteria and mob rule kick in over complex matters, they get stripped down and simplified in unpredictable ways.
Lone Star's business is very complicated for people outside of finance to grasp. This foreign fund, like others, was invited into Korea after the Asian financial crisis and initially seen as a savior because its job is to buy failed firms when no one else wants them and try to turn them around without spending taxpayer money.
But later, newspaper reporters discovered two things that they didn't like. First, Lone Star would make a profit when it sold the failed firms it bought, including Korea Exchange Bank, to ``strategic investors'' (i.e., other companies in the same industry), and, second, because it bought the assets via its office in Belgium, it would pay taxes there and not in Korea.
Coverage became savage and the savior was turned into a false prophet. The narrative became: evil foreign capitalists benefit from suffering of Koreans during financial crisis. The beast of public sentiment roared in protest. While other government officials scurried for cover, prosecutors emerged grandiosely to conduct an abusive witch hunt, and tax officials heroically demanded taxes knowing someone else would have to abrogate the taxation treaty with Belgium to get them. In this atmosphere, the financial regulator was too frightened to approve the sale of Korea Exchange Bank to HSBC.
Then Grayken arrives without his tie on straight.
Did he get what he deserved? I don't think so. But Korea did.
Michael Breen is an author, former foreign correspondent and the chairman of Insight Communications, a public relations consulting company. He can be reached at mike.breen@insightcomms.com.