South Korea’s top steelmaker POSCO Co. has shifted into emergency mode as the company strives to tide over what it sees as its biggest-ever crisis triggered by a prosecution investigation into a series of corruption allegations.
With the probe in full swing, POSCO announced Thursday the launch of an emergency management reform committee headed by Chairman Kwon Oh-joon and comprised of board members and the heads of five major affiliates. It is tasked with putting forward measures on corporate restructuring, managerial transparency, fair transactions and work ethics.
Also, in a symbolic move apparently to emphasize their determination to tackle the ongoing crisis, 32 group executives, including CEOs of its affiliates, offered to resign en masse, the first such move since POSCO’s foundation in 1968.
Analysts said POSCO’s “unprecedented” measures reflect its urgent sense of crisis and shows its commitment to a reform drive that has been under way since its chairman took over about a year ago.
The announcement came as the prosecution’s investigation into a slush fund scandal and other alleged corruption cases involving its affiliates is adding to the woes for the steelmaker, which is also suffering from an industrywide slump.
The probe has widened to include POSCO’s former chairman, Chung Joon-yang, and his management as a series of acquisition deals signed under his leadership between 2009 and 2014 are deemed politically motivated, which has hurt its business significantly.
During Chung’s five-year term, POSCO’s debt has ballooned, forcing the steelmaker to sell assets and undergo other restructuring efforts to improve its financial health and overall image of itself and its affiliates. Chairman Kwon has said that he will focus more on the core business of the group.
Analysts said POSCO’s recent measures show Chairman Kwon’s determination to overhaul the steelmaker and its subsidiaries.
“Those recent steps that POSCO have taken are unprecedented,”said Yi Hyun-soo, an analyst at Yuanta Securities Korea Co. “It seems that Chairman Kwon is pushing to change the company in a very aggressive manner.”
Choi Moon-sun, an analyst at Korea Investment & Securities Co., said that the immediate response from the market might be lukewarm but it is surely “positive.”
“When it comes to market response, I cannot say that the impact is significant. It would be tough to turn negative perspectives around unless it produces some tangible achievements,” Choi said.
“Still, the fact that POSCO has taken such steps not seen in the past has to be considered as positive.”
In mid-March, prosecutors raided the head office of POSCO Engineering & Construction Co. as part of a probe into allegations that the company created massive slush funds overseas by inflating the amount of money needed to pay subcontractors in Vietnam.
The investigation into four former and incumbent senior officials has been completed with a former vice chairman of the construction unit likely to be summoned for questioning next week.
Sources say that the probe is in its final stage.
Kosteel Co., a partner company of POSCO, is also under investigation as it is suspected of having served as a slush fund “conduit” for the steelmaker, with Chairman Park Jae-chon arrested on Thursday on charges of creating 20 billion won worth of covert money.
Prosecutors believe the Kosteel chairman, who is known to be friends with former POSCO CEO Chung Joon-yang and key members of the previous Lee Myung-bak government, helped the global steel giant evade taxes by doctoring their transaction records for years.
A separate investigation is under way into POSCO Plantech, an affiliate of POSCO, over suspicions that about 100 billion won worth of money the company earned from its overseas business has been misappropriated. Some suspect that part of the money might have been flowed into the steelmaking group.
With some of the people involved in those scandals known to have close ties with high-ranking officials of the previous government, critics say that if any of the allegations turn out to be true, it could hurt POSCO’s global reputation.
The ongoing crisis for POSCO is blamed partly on its murky connection to politics and the influence it has on its overall decision-making process, such as major bungled overseas projects apparently motivated by the Lee government’s push to develop overseas natural resources during the 2008-2013 period.
Previously state-owned, the steelmaker was privatized in 2000 but appointments of the conglomerate’s chairmen are still understood as heavily influenced by the government and the change of its management usually results in the change of its CEO, regardless of business circumstances and the remaining term.
The heads of POSCO were often jailed after stepping down on various corruption charges.
Experts said that such noise coming from the change of leadership and the influence of the political community is a long-term issue that will hold investors back, adding that it is a reason for POSCO’s undervaluation in the market.
Some, however, cautiously noted that a changed mood is being detected in major business decisions at POSCO since the new chairman took office and that it might be signaling a departure from age-old management practices.
“What has been seen since Kwon’s inauguration last year shows that he is trying to reshuffle the business based on profitability,” an analyst said on condition of anonymity. “It doesn’t seem to be swayed as much as in the past, which can be seen as positive for investors.”
Earlier this year, POSCO told investors that it will reduce investment and seek to sell assets deemed unnecessary to its core business this year as part of restructuring efforts.
Kwon said that the company will strengthen its financial soundness by securing some 1 trillion won this year through planned corporate restructuring, such as affiliate sales. (Yonhap)
