February 28, 2007

The SK corporation is one of South Korea’s most successful conglomerates, and an emblem of the country’s rapid economic development. Just a few decades ago it was a small textile concern in rural South Korea. Now it generates U.S. $70 billion in annual revenues worldwide from ventures as diverse as energy and telecom, and is 112 on the Fortune 500 list. Still, when SK’s chairman Chey Tae Won assumed leadership in 1998, the company was in trouble and major reforms were needed.

Speaking at a CEO Luncheon program at The Four Seasons hotel in New York, chairman Chey explained SK’s organizational challenges and the plan he implemented to overcome them. In 1998, South Korea’s economy was still reeling from the IMF crisis. Beneath such immediate problems as liquidity and debt issues however, Chey discerned a deeper crisis at SK. For a generation, Korean business had imbued its managers with a strict sense of hierarchy and vested all corporate power and initiative with the chairman. Amidst the crisis, corporate officials were paralyzed, unable to respond for themselves to emerging issues.

Chey saw that to change this pervasive culture he would have to start at the top. He began by reforming SK’s board of directors. In the process, 70% of the new board he appointed was drawn from outside the company, so as to bring in new ideas. Chey then mandated 100% attendance at meetings from his board. Most importantly, he stressed to each member that from that point on, they would be responsible for developing their own strategies as opposed to waiting for direction from above.

Resistance to Chey’s reforms was initially high. However, it abated as the reforms gained traction and the company became more nimble. Now Chey is in the process of implementing similar reforms on the boards of SK’s dozens of affiliate companies.