More Than One Right Way, Part 3

My friend Lawrence is a confident, good-looking, soft-spoken man, a 45-year-old executive vice-president of an investment bank here in Seoul. When I asked him what he felt he had gained from his six years in Korea, he said, “Finding out that there is more than one right way of doing things.”  He enjoys watching people, and he speaks of his Korean colleagues with obvious affection. I suspect that he also enjoys molding himself to fit into different environments and circumstances.

Lawrence’s story

With the strict hierarchy of Korean companies, sometimes crazy things happen. When the president and I chose our office furniture, we were like two kids going through a Sears catalogue. Without giving it a second thought, we chose the same furniture, which meant that my desk was the same size as his. The bujang [manager] in General Affairs had a problem with that, but he couldn’t insult me by asking me to change my order. This was someone who liked me, too—it wasn’t an anti-foreign thing. Acting totally on his own, he ordered me a custom-made desk which was twenty centimeters shorter than the president’s desk but which cost more as a custom order.  Now, this other unit I have the computer on was supposed to fit under the desk so the whole thing formed an L. But if you tried that, there was no room for the chair.

So then I said, “It doesn’t fit together.”

He had a couple of meetings with the people in his department and then came back to me. “This is terrible,” he said, “there is no one else senior enough to have this desk. So we will have to abandon it.”

“What do you mean?”

“We will have to put it in storage and never use it. And then we can order you the other desk.”

I could tell he did not want to order a desk the same size as the president’s, although he might have readily agreed to another custom-made one that was a half-centimeter shorter. It was such a typical culture clash that the president and I laughed about it. It hadn’t occurred to him to plan for this eventuality. I was a little frustrated at the sheer idiocy of the whole process—this is just mass-produced furniture, for crying out loud. So in the end the image of the president was preserved, and with it the image of the company, but I sit here with an L-shaped desk that doesn’t form an L. It’s interesting, because in Japan that sort of thing is life or death.

The Koreans are called the Irish of Asia, and they’re thought to be emotional and quick to anger. I like that about Korea. In Japan I spent half my life trying to figure out what people were thinking—which the Japanese do as well. There’s this sense of shibui, or subtle understatement. The worst thing you can do is ask somebody directly, “What do you feel about this conflict?”  I saw some situations ten years ago where I think, looking back, nobody ever figured out what was really going on. In Korea I have always felt I knew within ten minutes what was happening—what the issue was and who felt what about it. I’ve had heated arguments about things that were important to both sides, like a disagreement between foreign and Korean shareholders. But afterwards we have forced ourselves to go to lunch with each other and then have quickly forgotten our differences.

Banking in Korea means putting up with a certain amount of government interference. According to law, all banks must have a Standing Auditor. We already have an accounting firm outside that audits the books. So his is a prestige job with no content, a no-work job which was created by government fiat right after the war to find dignified employment for military or government personnel after they were pushed out of power. These days they’re usually Ministry of Finance retirees. The Standing Auditor is the second-highest paid person in the company. We buy him a new car every two years, and he has a little putting green in his office and a secretary who’s never written a memo.

Our senior management, in a private corporation whose profits have tripled in five years, would be getting mega-bonuses in the United States. The president would probably earn close to a million dollars. Instead, he is not well-paid and, in the last five years has had only one five-percent raise. Every year our shareholders vote substantial salary increases, but we ignore the vote because theMinistry of Finance calls on the senior members to say, “As a show of solidarity with government employees please do not take raises this year. We need to restrain ourselves, to avoid conspicuous consumption and to demonstrate that we’re not wastrels.”  So you can give your staff raises, but don’t take them yourself. We’re audited by government agencies. If they found out that we had found ways to increase the president’s salary, they wouldn’t come in and insist that we fire him or take the money back, but the next time we applied for permission to launch a new product in the market or asked for an increase in the limit of money we could raise offshore, we’d be refused.

One of the shareholders of a Korean financial institution has a foreign car distributorship. He called up the president of the bank one day and offered him a luxury foreign sedan. The banker couldn’t turn down the shareholder. Within two weeks he got a call from the Ministry of Finance saying, “The presidents of merchant banks drive Hyundai Grandeur V6’s. Get rid of the foreign car.” He was never seen in that car again. He gave it to the foreign executive, who was delighted to have it.

There are six merchant banks here. We were forced to create an association so the government would have an easy vehicle for dealing with us—this was supposedly something we wanted. We’re also forced to be members of the short-term finance association, the credit association, the futures and options association, and there’s one other. We are paying over a million dollars in fees to these associations. In reality, the associations are retirement camps for Ministry of Finance people. The head of the associations receive Hyundai Grandeurs and very nice offices—some associations even bought their own buildings. By supporting them we curry government favor. These people have great prestige, but since they are not experts in the industries they serve, it’s hard to see what tangible benefit they bring to us.

The associations ask us for information, compile it and share it among all the competitors. So, for example, when we created an interesting new product, my boss at home said, “Well, that will give you about a year and a half leap on the competition.”

I said, “Try two weeks.”

President Ahn laughed and said, “He’s right.”

That product was suddenly being reviewed by the association, it would be explained to the government, and then everybody else got the specifics of it. If the association didn’t leak it, our staff would. They’d fax it over to their fellow college alumni at the other investment banks. So we’re knocking ourselves out just to stay average.

Possibly the reason why the president tends to be involved in the most minor decision of a company is that, as Representative Director, he is responsible for everything. I have a Korean friend who was president of a foreign cosmetics firm. In order to import the cosmetics into the country, you’re supposed to list the chemical contents of the box on the bill of lading. Well, these are gift sets of ten lipsticks, and the chemical composition varies minutely little from color to color. The sets are shipped in boxes of two hundred and forty with one list of chemical contents.

The Korean cosmetic manufacturers suddenly started worrying about competition from imports. They bought a judge. They had the government set up a special secret prosecutor, whose name to this day has not been revealed. Then they set up an investigation of my friend and five other importers. They bugged his office and his home. They followed him and his wife. They finally arrested him. He spent a total of eight weeks in jail without ever having been charged with anything. He was released just after the Christmas selling season.

One of the things they dangled in front of him was 2,400 counts of import fraud—each of which carried a penalty of up to ten years in jail—for each case imported. The company probably brought in a hundred cases a month. He had no knowledge of the fact that all the chemical contents were not listed. It was probably a decision made by the shipping manager so he wouldn’t be typing until next Tuesday—and running a separate chemical analysis for each color. But as Representative Director my friend was vulnerable.

In 1978 when I was here for my overseas office, times were much tougher. Korean businessmen worked seven days a week from early morning until very late at night. For example, one morning I ran into a Daewoo man at two o’clock after he’d been entertaining business associates, and at five o’clock I saw him again in the lobby of the Lotte Hotel, where he had to attend a breakfast. He’d had two and a half hours’ sleep.

We had strict energy conservation in those days because it was a poor country. The government was trying to direct every available dollar into capital investment to fuel the engine for exports. I would sit here in this building—which had just opened—wearing a winter jacket, heavy gloves and boots, with my feet on the space heater. I could see my breath.

If you compare 1978 with 1994, it’s night and day. Simple things could be very complicated in 1978. When we arrived we wanted to buy a telex machine because we had not been allowed to bring one with us. We had to buy it here. We went over the Hannam Bridge—in those days the city ended at the Han River—and took a dirt road through the pear trees for about an hour until we came to a shop with a concrete floor and a roll-up door, which allowed the wind and the dust to blow in on whatever they had for sale. They had two telexes available–one about twenty years old, and the other five or six years old. For the six-year-old machine they charged us six times the U.S. price of a new telex, and we also had to tip the man personally for selling it us. Then we had to hire a truck and tip the driver to be careful with the machine. In order to get a license to operate it, we had to hire a government-licensed telex-operator at a relatively high salary. In those days licenses only went to the daughters or sons of veterans’ families. The operator we hired did not know how to type or use the machine. We then hired a secretary, who actually operated the telex and gave some mail-room and tea-making duties to the telex operator. Then we needed to have wiring put in so that we could actually plug the machine in and operate it. We were told that was going to take six months because every electrician in Seoul was busy. It couldn’t be done. We bribed the electrician with about ten thousand won—fifteen dollars in those days—which was quite a bit of money, considering that I got the heat restriction bypassed in my office for two packages of foreign cigarettes, which was probably a dollar then.

In 1978, we used to have policemen stopping by regularly to ask, “Do you have anything for charity?”  Our charitable donations became a major expense item. Today there are many things you can do without bribing anyone, but Korean companies still have a percentage of their expenses that by law are not auditable by anyone. The percentage varies by the type and the size of company, but if you look at that category of expenses, you understand why you have the customers you do, why you have the relationships you have, why the government agencies are helping you or hindering you, and why the tax authorities are really nice to you or not. Every year the government tries to cut the corruption down a bit, but since the government has been the prime beneficiary in the past, the progress is slow.

The amazing thing about Korea for me is that this country responds. Korea has a great ability to move everyone together. Homogeneous societies are like that. And here there’s a much stronger middle class and a much more social consensus than in Japan. In other countries, government bureaucrats may be sitting on the tracks, and when they hear there’s a train coming they’ll say, “Well, it’s not coming for another five minutes. Let’s sit here a while longer.”  Koreans say, “Train!”  And everybody moves.

For example, government officials, concerned about rising residential real estate prices, said, “We’re going to build apartments,” and they built two million apartments in three years. Think of two million toilets and showers! Because nobody was equipped to produce that amount of porcelain in Korea in such a short time, in the end much of it was imported. Construction companies were working around the clock to build six satellite cities. It was a response to a need, if perhaps an over-zealous one. There was some inflation and some imbalance of payments because of the import component that wasn’t factored in, but everybody just jumped in and got it done. Sure enough, real estate ended. And I’ve seen that so many times.

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