The Fall of Daewoo Motors

The then Korean President Park Chung Hee⁴ (Park) helped Kim by handing over the management of bankrupt companies, which were slated for restructuring by the Korean government. Park also helped Kim with essential resources and official assistance. Kim also developed close contacts with politicians and managed to get huge amounts of funds from several Korean banks. Funded by government-approved borrowings, the Daewoo Group witnessed significant growth and diversified into several businesses during the 1970s and 1980s. In the early 1990s, the Group expanded overseas and soon became the 18th largest corporation in the world. The Group had investments in more than 400 projects in about 85 countries.

The Group's management believed that expansion equaled success. However, little attention was paid to the profitability of the new businesses. In the mid-1990s, the Daewoo Group was charged for corrupt corporate governance practices. Reportedly Kim, along with 34 executives and accountants of the Group, had generated $20 billion officially and $38 billion unofficially in the form of illegal foreign exchange loans. They also pooled funds from the different subsidiaries of the Group through false documents. The Daewoo Group had also reportedly manipulated its accounts to show fictitious profits and decrease liabilities (See Exhibit I) to present a rosy picture of its overall financial performance. The Group seemed to have hidden many of its failed ventures and also swapped assets among the Group's companies...