Out With ConfuciusIn Korea's Big Firms

The company's meeting starts with a suggestion, illustrated by a simple diagram. Then somebody has a question, and a stipulation - and then 10 more. Soon, a meeting scheduled for an hour runs past lunchtime. The conference table, strewn with papers, soda cans, and mugs, sits empty - everybody is at the marker-board talking at once, contributing to a messy web of diagrams.

This is ground zero for the radical remake of a typical South Korean conglomerate, forced by Asia's economic crisis to throw off old habits and quickly adopt new ways of business.

The company, which makes electronics and other products, is so ashamed by the chaos within that it asked that its name be withheld. Its planners are frantically figuring out what to cut - stocks, real estate, subsidiaries, workers - just to stay afloat; and if the company survives, how it can avoid future crises with better accounting, decisionmaking, and more productive workers.

Dozens of South Korea's conglomerates, known as chaebols, are scrambling to transform their corporate culture. The Western ways they aim to incorporate are so different that most Koreans have little idea of what's in store.

The first stage of South Korea's development - getting technology, building plants, and exporting products - was simple by comparison. "Now there's a lot of things that have to happen that aren't so straightforward," says Robert Felton, a director at McKinsey Inc, a US consultancy helping chaebols to restructure.

Kings to democrats

It starts at the top.

Most chaebols are owned and controlled by the founding family. Even top managers who actually run the company are often overshadowed and easily overruled by them. Sometimes this means questionable investment decisions. Lee Kun Hee, chairman and son of the founder of Samsung, has a personal passion for cars. Against the advice of economists, he set up a $2.3 billion car factory despite a glut in the world auto market. Early this year, the factory began churning out a version of Nissan's Maxima with Samsung's name on it.

Fortified by Korea's Confucian traditions that demand devotion to elders, Mr. Lee and other captains of industry set mostly unchallengeable agendas."The chairman is not a dictator but has a kind of omni-power," says a manager at one chaebol, who like others, doesn't want himself or his company named when talking about such things. "Lower-ranked people can't resist," says another.

This atmosphere stifles potentially constructive dissent, frustrates talented younger workers, and makes others passive while they wait the 20 to 30 years to climb the hierarchy and get a bigger desk with decision making authority.

Analysts say such a work environment doesn't bode well for harnessing workers' potential. "They're basically trained to follow strong leadership, not develop their own", says Kim Yong Sun, a consultant at McKinsey. McKinsey estimates Korean chaebols are only 50 percent to 60 percent as productive as their world-class counterparts.

But slowly things are changing. "Nowadays, several people can join to make important decisions. But even so, the final decision is made by [the owning family]," says Kim Chul Jung, an executive director at Doosan, a chaebol involved primarily in beverages, construction, and electronics.

Mr. Kim says his top management is more open-minded, and other Doosan workers note that leadership explains decisions more thoroughly these days. But Kim thinks there are lots of "emotional issues" to overcome for most top management in Korea to become more democratic. When asked about how he feels about being questioned by lower-ranked workers, he says, "I think I'm ready to hear challenges." He knows they're on the way: "Nowadays young people are so brave," he laughs.

Young, American-educated Koreans employed by foreign consultancies often find themselves on the front lines of pulling down the old Confucian order. A chaebol office worker recounts consultants in their late twenties confronting managers in their forties: "They have to literally yell at them and say 'No, you can't do it like this!' "

Merit, not age

Such scenes will only become more common. In another era, Koreans living a stable life in small farming villages revered elders who had more experience and wisdom. But in a dynamic marketplace, age counts for less and performance means everything. Korea's mild-mannered salarymen who could expect promotions on set schedules will be thrown into a new competitive world of merit-based promotion. "We will be very pressed to be more productive ... or we'll be kicked out," says a manager at Doosan.

Western tradeoff

But many worry that the family-like atmosphere of Korean companies will be lost. "The old model [built] a very deep relationship between managers and employees," says Mr. Kim at McKinsey.

Personal connections and their importance in Korean society are often questioned by foreigners who criticize "crony capitalism" - the practice of doing business based on who you know rather than financial considerations. Lacking oversight and clear rules, South Korean companies have left plenty of room for graft and inefficiency. But Koreans fear losing what they might call "family capitalism."

Western business practices have "bad connotations" of impersonal and efficiency obsessed work environments where unneeded workers are tossed out like old machinery, says Kim. "Lots of Koreans think Western capitalism is too harsh and would neglect human relationships," he says.

Cho Nam Do, a spokesman at Ssangyong, says the virtue of Korean workers is their loyalty, diligence, and harmony. But in the process of becoming more "innovative and productive" they might also become "more self-oriented and egocentric," Mr. Cho worries.

New rules

The chaebols are often likened to Frankenstein's monster - very powerful, but inefficient and impossible to control. Nobody was free enough from politics and personal relations to reform them until international investors lost faith in the chaebol's ability to earn money and pulled the plug on credit. After the crisis hit, "restructuring became more urgent. [Foreign] investors want to see some changes taking place," says Mika Sarkkinen, an assistant manager at Samsung'.

Initially, even South Korea's new president sounded like his term in office would start with old ways. President Kim Dae Jung raised the possibility of arranging "big deal" mergers and acquisitions to fix chaebols and asked the conglomerates to close their "control tower" chairman's offices that oversee the activities of different subsidiaries. But Kim's administration has since changed tack and is looking to free-market mechanisms rather than strong-arming and micromanagement to do the job. "So many Koreans are so used to big government solving all the problems of the nation ... but we are now in a different world. We're now in a crisis that requires serious surgery," says You Jong Keun, President Kim's top economic adviser.