Thinking About the "Process of Failure"

Woongjin Holdings choosing to go into court receivership alongside Keukdong Construction has recently become a huge issue in the economy. Watching what has happened to Woongjin and Chairman Yoon Seok-geum these days, I feel a deep pang of regret. Partly it's because the "Yoon Seok-geum myth" — starting bare-handed as a "door-to-door book salesman" and building a group in the top 30 of Korean business — is now in its biggest crisis. But more than that, it's the "moral hazard" controversy now swirling around him.

 

One outlet described the future of Woongjin and Chairman Yoon like this today.

"Chairman Yoon Seok-geum, having chosen abrupt court receivership, has lost credibility in the M&A market, in the bond market, and across the financial industry. One creditor official said, 'We'll have to see whether the receivership proceeds the way Woongjin Group intends.' Another credit-industry figure said, 'Even if Chairman Yoon exits receivership and goes back to running a normal company, he won't escape being ostracized,' adding, 'It looks like he underestimated creditors and banks and reacted emotionally.'" ("Financial industry's anger erupts... 'We'll have to watch the receivership'", Edaily, 2012.9.27)

 

In other words, Chairman Yoon has lost "trust" by choosing receivership this time. Many are suspicious that even putting Woongjin Holdings into receivership was really about preserving his management control. Some in the media have interpreted his appointment as CEO of Woongjin Holdings just before filing for receivership as a "trick" to keep control of the holding company through the DIP (Debtor in Possession) system.

"A credit-industry figure said, 'It appears Chairman Yoon Seok-geum stabbed the banks in the back and made this choice to keep management control of Woongjin Holdings, where he holds a 73.9% stake,' but added, 'If breach of trust or embezzlement issues surface in the process, holding onto management control even inside court receivership won't be easy.'" ("Financial industry's anger erupts... 'We'll have to watch the receivership'", Edaily, 2012.9.27)

 

The Woongjin Coway sale, described as "a decisive move to come back," falling through right before the payment was due has also drawn plenty of criticism. "Some see it as Woongjin Group filing for receivership before the October 2 payment date for the sale to MBK Partners, specifically to keep Woongjin Coway. Once you file for receivership, the sale of Woongjin Coway is automatically voided, and the view is that Woongjin Group used a trick to hold onto the group's 'cash cow,' Woongjin Coway." ("Woongjin, an unavoidable receivership choice? Signs of advance preparation emerge," Chosun Ilbo, 2012.9.27)

 

On top of this, reports are emerging one after another — the chairman's wife, relatives, and senior employees sold off Woongjin ThinkBig shares just before the receivership filing; Keukdong Construction sold its prime Jeju Island hotel to Woongjin Foods prior to receivership; and Woongjin Holdings paid back debt to affiliates first, right before filing.

 

The Woongjin Group began to shake like this after it jumped into three new businesses — construction (Keukdong Construction), energy (solar power), and finance (savings banks). As I've mentioned in this Economy Note long ago, it fell into the "winner's curse" through aggressive M&A.

 

With a heavy heart, I pulled the chairman's book ("Positivity Creates a Masterpiece") off the shelf. In a sense, failure itself may not be that big a deal. As he himself says, there is no need to fear failure in itself. He wrote in his book, "If you fear failure, you cannot take on a challenge. And if you do not take on a challenge, you cannot achieve success."

 

What matters is not "failure itself" but the "process of failure." Whether you keep or lose trust along the way. In his book, Chairman Yoon wrote:

"Successful businesses made me materially wealthier, and failed businesses made me spiritually more mature."

 

A person who can mature spiritually through failure has not really failed. Whether they stage a comeback later or choose another path and another kind of life, their life can still be rich and happy. I hope Chairman Yoon does not forget the words he himself wrote as he works through this situation.