Oxstones Investment Club™Ted Chung, chief executive officer of South Korea’s biggest consumer finance company, was on a business trip in Copenhagen in April 2011 when his deputy called in a panic. Hackers had broken into computer servers at Hyundai Capital Services Inc., stealing customers’ personal information. Stunned, Chung hopped the Hyundai jet back to Seoul.
Then, in a rare move in the tight-lipped world of Korea’s family-run conglomerates, or chaebols, Chung held a nationally televised press conference, Bloomberg Markets magazine will report in its March issue. He agreed to spend 100 million won ($92,000) to help investigate and raised Hyundai Capital’s annual security budget for information technology sevenfold to 35 billion won.
“It was humiliating,” Chung says, the sleeves of his slim- fit designer shirt rolled up as he recalls the incident in his 11th-floor conference room. “We were supposed to be perfect.”
Police eventually arrested the thieves. But the episode proved an uncommon setback for Chung, a son-in-law of billionaire Hyundai Motor Group Chairman Chung Mong Koo.
Ted Chung, 52, has turned financial units of Hyundai, South Korea’s second-biggest chaebol, into star performers with credit cards that pay upfront cash rewards and ventures with General Electric Co. (GE) and other global powerhouses.
Chung’s Rise
Since Chung, who has the same surname as Hyundai’s leader, took over at Hyundai Capital and credit card purveyor Hyundai Card Co. in 2003, their combined profit soared to 746 billion won in 2011 from an 800 billion won loss his first year.
The card company has been profitable since 2005 and jumped to No. 3, after Shinhan Card Co. and Samsung Card Co., with a market share of 14.4 percent in June. The revenue of the four companies Chung runs was 7.2 trillion won in 2011, making them bigger than Korea Exchange Bank, the nation’s sixth-largest commercial bank.
“Ted Chung is probably the most innovative CEO in Korea’s financial industry,” says Jun Yong Wook, dean of SolBridge International School of Business in Daejeon, Korea. “He showed that it’s possible to create new growth in the highly competitive credit card industry, something that hasn’t been done.”
Chung has built Hyundai’s signature card, with its M logo, into the most popular in a country with 2.4 credit cards per person in 2010, trailing only the 2.8 cards per capita in the U.S., according to the Bank of Korea.
Lady Gaga
He initially chose M to stand for “motor” because cardholders buying a Hyundai or Kia Motors Corp. (000270) car got up to almost $2,000 cash upfront and repaid it with points earned charging other goods. Today, customers get and spend points on everything from gasoline and hospital bills to Hyundai-sponsored concerts.
Chung says Korean companies must stand out to win customers, especially in crowded financial services. Chairman Chung, who turns 75 on March 19, rarely appears in public and disperses orders through lieutenants.
Ted Chung tweets with customers and lined up a Lady Gaga show in April 2012 about which he raved on Twitter, “Best live concert ever.”
A year earlier, he had invited not-yet-famous Korean singer Psy to talk about how he had built his unique brand. Psy’s “Gangnam Style” video has gone on to become the first YouTube hit to surpass 1 billion views.
“My goal is to redefine the financial industry,” Chung says. “I get excited when everybody in an industry is clinging to doing business the way they always have.”
Third-Generation Leaders
Chung is a member of a small cadre of hip, entrepreneurial and expansion-minded executives who are shaking up how family- controlled companies do business.
Army strongman Park Chung Hee set an insular, military- inspired tone in the 1960s after the Korean War. As president, he subsidized automaking, steel and shipping chaebols, concentrating power among a few autocratic leaders.
Half a century later, Chung and others are showing they can boost profits while breaking tradition.
Chung’s brother-in-law, Hyundai Motor Vice Chairman Chung Eui Sun, 42, ignored company norms by tapping Peter Schreyer, designer of Audi AG’s TT Coupe, to turn one-time laughingstock Kia into a cool brand. Bavarian-born Schreyer became Kia’s first non-Korean president in December.
Jay Y. Lee, heir apparent at No. 1 chaebol Samsung Group, attended Steve Jobs’s memorial service and met Apple Inc. CEO Tim Cook. Samsung’s advertising blitz has helped lift it over Apple as the world’s top smartphone seller while the two battle over patent rights.
Chaebol Heirs
“We are now seeing these younger, Western-educated, third- generation leaders increasingly making inroads in chaebols,” says Lee Ji Soo, an analyst at Seoul-based research group Center for Good Corporate Governance. “Some are trying to shake things up, but I am skeptical there will be a fundamental change.”
Lee says prominent young leaders lack incentives to revamp their companies’ ownership structures.
Ted Chung and his wife, Chung Myung Yi, hold 50 percent of Hyundai Commercial Inc., a leasing company that Chung runs. In 2011, the firm’s dividend payout ratio was 40.9 percent, compared with an average of 20 percent for the 770 companies in the benchmark Kospi Index. The figure for Hyundai Commercial soared to 65.6 percent in the third quarter of 2012.
“This is a classic case of how chaebol companies transfer wealth to family members,” says Kim Sang Jo, director of Solidarity for Economic Reform, which promotes minority shareholders’ rights. Hyundai Commercial spokeswoman Fiona Bae says, “It is normal practice for a company with an increased profit to offer a dividend.”
New President
Chaebols deter outside entrepreneurs and perpetuate a ruling elite, says Jang Ha Sung, a finance professor at Korea University in Seoul. The number of Hyundai Motor Group units jumped to 55 from 36 during the first four years of outgoing President Lee Myung Bak’s tenure, which began in 2008. Late President Kim Dae Jung, in comparison, didn’t rescue a dozen ailing chaebols during his term that ended in 2003.
“The void left by the failed chaebols should have been filled by startups,” Jang says. “Instead, remaining chaebols quickly moved in and became bigger and more powerful.”
Park Geun Hye, who was set to become South Korea’s first female president in February, has vowed to cut the chaebols’ clout. Even so, Park, the daughter of the late military strongman, has said she won’t dismantle their structure, as her opponent, Moon Jae In, had proposed.
Emerging Market
Third-generation leaders are rising at a crucial time for South Korea. Asia’s fourth-largest economy was behind only China in the Bloomberg Markets ranking of the best emerging markets for investors in 2012. The ranking is based on more than a dozen measures, from gross domestic product growth to the ease of doing business.
Chung faces rising challenges as Korea’s economy slows. The Bank of Korea in January cut its 2013 GDP forecast to 2.8 percent from 3.2 percent. Household debt, the sum of home loans and credit purchases, soared to a record 937.5 trillion won in the three months ended on Sept. 30.
“The high level of household debt and rapid expansion of nonbank credit to vulnerable households are key concerns,” the International Monetary Fund said in September.
Chung is pushing overseas as new regulations lower average commissions merchants pay card companies to 1.9 percent from 2.1 percent.
‘Great Respect’
Hyundai Capital formed a London-based venture with Spain’s Banco Santander (SAN) SA last year that provides auto financing to Hyundai and Kia dealers and U.K. consumers. In China, where auto loans are scarce but rising, he started a car-financing venture with Beijing Automotive Group Co.
General Electric is a key partner in offering loans and leasing cars. GE has invested 3.6 trillion won for 43 percent of Hyundai Card and 43.3 percent of Hyundai Capital.
“I have great respect for Ted Chung as an innovative and visionary leader who sees markets, customers and opportunities that many others don’t,” GE Vice Chairman John Rice says.
Chung’s maverick ways haven’t always pleased his in-laws. Chung Ju Yung, Hyundai Motor’s late founder, imbued his family with the Confucian principle of a social hierarchy in which self-discipline, hard work and especially frugality were essential.
Shrimp Dish
Ted Chung recalls his courtship of Chung Ju Yung’s granddaughter Chung Myung Yi, who became his wife. At dinner, the Hyundai leader, one of Korea’s richest men, scolded his cook for preparing an expensive shrimp dish.
Ted Chung himself grew up in affluence in Seoul, cultivating a penchant for designer suits and fine wine. Chung’s father, a math teacher, founded Jongro Academy in 1965, Korea’s best-known test-prep school.
Interested in advertising and marketing, Chung enrolled in the University of Pennsylvania’s Wharton School’s MBA program in Philadelphia. Then, intrigued by corporate strategy and finance, he transferred to the Massachusetts Institute of Technology in Cambridge.
Chung Mong Jin, a nephew of Hyundai’s founder, introduced Chung to his future wife. Ted Chung recalls how the first meeting with the family patriarch devolved into a lecture about the Chungs’ long aversion to extravagance.
Another culture shock came after Chung and Myung Yi wed in 1987. He says managers made fun of the Western-educated hotshot who got lucky by marrying one of the founder’s granddaughters.
Hyundai Mobis
Chung’s first chance to shine came at a foreign backwater. He took over as president of the Mexican unit of what’s now auto-parts maker Hyundai Mobis (012330) Co., turning the money-losing operation in Tijuana profitable.
He began reviving another laggard, the card company, in 2003. He allocated an unprecedented $50 million marketing budget for the M card. He revamped the headquarters, where employees can cruise outside on lunch breaks on company-owned bikes, and hired a 40-person design team — the only financial firm in Korea with such a crew.
Chung added to his duties with Hyundai Commercial, a vehicle and machine leaser and corporate lender. He created Hyundai Life Insurance Co. after acquiring Green Cross Life Insurance Co. in 2011.
He wants to convert Hyundai Life, which ranks 18th among Korea’s 24 life insurers, the same way he built Hyundai Card — by making it stand out.
These days, the card company is promoting underground bands such as Galaxy Express. The three-man band’s hard-driving rock contrasts with the country’s K-pop boy and girl bands.
With father-in-law Chung Mong Koo monitoring his progress and other chaebol leaders assessing his moves, Chung says, he knows his job hinges on performance, not flash.
“You can fall like a dead leaf in the autumn wind if you don’t deliver,” he says with a smile.
http://www.bloomberg.com/news/2013-01-29/hyundai-s-chung-taps-lady-gaga-in-shaking-up-korea-inc-.html
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