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Hanjin's Demise A Stark Reminder Of Chaebol's Management Flaws

By February 17, 2017 at 6:15 am
South Korea Court Undecided Whether Sale of Hanjin Shipping is Necessary, Contradicts Bloomberg Report (Photo : Rolf Schulten | ullstein bild | via Getty Images)

Former 7th biggest shipping company Hanjin Shipping will file for bankruptcy on February 17 after amassing billions of dollars in debt. As it heads to the court for its last statements, the once powerful company now is deprived of assets and only a handful of employees under its payroll. It certainly is a depressing picture coming from a company that was once Korea's top sea transport company.

The company was affected by a slump in global trade for the past three years and a growth slowdown in China. Hanjin Shipping filed for bankruptcy protection in August after creditors refuse to help it service $5.37 billion dollars of debt.

But according to Inquirer, signs for Hanjin's demise were beginning to show when it's owner's widow Choi Eun-Young took over as CEO in 2007 even after admitting that being a housewife, she has no experience running a huge company. Once in charge, the new owner started an expansion drive that increased operating costs which is driven by a booming shipping industry.

But after a global financial crisis caused to company to spiral down, Choi was forced to step down while her brother-in-law Cho Yang Ho replaced her in 2014.

In a parliamentary hearing last year in September, Choi broke down saying she had no expertise managing a company as she has always been stuck home as a housewife. By that time, the bankruptcy filing last year shocked the world with most of its fleet of 141 ships banned from docking in the US, China and other countries.

Hanjin's downfall is a stark reminder of the dangers of running a "chaebol" which is what Koreans call large business conglomerate that is typically family owned. Chaebol's father to son succession does not assure success despite Chaebol's role in Korea's fast economic development.

Succession through family ties rather than competence poses risks that might lead to a company's downfall as seen in Hanjin's demise. Samsung is also having similar issues related to their CEO's cases of embezzlement and the Galaxy Note 7's battery issues.

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