Checkbook Apologies

Facing questions from Korean regulators over your company's business practices? Just open your heart—and your wallet. That seemed to be the message last Wednesday as the Hyundai-Kia Automotive Group, under investigation for allegedly creating a slush fund to influence government officials, apologized to the public for "causing the nation much anxiety" and pledged a whopping $1 billion in donations to unspecified charities. The same day, U.S. private-equity firm Lone Star Funds, facing an inquiry into its purchase of a local bank in 2003 and smarting from allegations that its former top Korea executive had embezzled millions, announced it would donate some $105 million to the government as "a gesture of goodwill." Neither apology was an admission of guilt, but rather, as the Hyundai statement asserted, an attempt to make up for any past failure to fulfill their "social responsibility" as corporations.

But if the plan was to burnish Hyundai and Lone Star's public image, it's backfired. Critics and local media have called the pledges a cheap ploy to get the government to overlook any wrongdoing. "It's just ridiculous. It's an insult to the public and it is unprecedented," says Professor Jang Hasung, dean of Korea University Business School, calling the moves a bad precedent for other companies: "Now the rumor is who is next, and how much should they contribute?"

Saying sorry with cash has become a common strategy for corporate Korea. Samsung, the nation's largest conglomerate, announced in February it would donate roughly $800 million to charity following a spate of embarrassing incidents, including bribery accusations against its chairman Lee Kun Hee (Lee was cleared of the allegations). But Hyundai and Lone Star's moves aren't helping either company's regulatory woes, as the national Supreme Prosecutors' Office has said the donations won't influence the outcome of its investigations. "The government does not like the timing of the offers," notes Seoul-based business consultant Hank Morris. Maybe the next Korean company to come under fire won't be so quick to open its checkbook.