FCPA Compliance and Ethics Blog

January 9, 2015

The Darwin Awards, Nepotism and Compliance

Darwin AwardsI am a podcast aficionado. One of my favorites is Slate’s Hang Up and Listen, which is a weekly discussion of sports events and issues. One of its segments details each participant relating a whimsical event from the previous week. I thought about whimsy when I was studying Christopher Columbus and his travels to the New World recently. Everyone knows that In 1492, Columbus sailed the ocean blue but you may not know that on this day in 1493, sailing near the Dominican Republic, he believed that he saw three mermaids which he reportedly described them as “not half as beautiful as they are painted.” However, it turned out that he only saw manatees for the first time.

Mermaids, mythical half-female, half-fish creatures, have existed in seafaring cultures at least since the time of the ancient Greeks. Typically depicted as having a woman’s head and torso, a fishtail instead of legs and holding a mirror and comb, mermaids live in the ocean and, according to some legends, can take on a human shape and marry mortal men. Mermaids are closely linked to sirens, another folkloric figure, part-woman, part-bird, who live on islands and sing seductive songs to lure sailors to their deaths. Mermaid sightings by sailors were most likely manatees, which are slow moving aquatic mammals with human-like eyes, bulbous faces and paddle-like tails.

I thought about Columbus and his initial belief that he saw mermaids and decided to cut him a bit of slack, even if only to chalk it up to whimsy. But sometimes you simply cannot believe that corporations and their senior management are so stupid as I continue to I read about the ongoing Korean Airlines scandal, which has been dubbed Nut-Rage. As readers will recall it involved the (now former) Korean Air executive Cho Hyun-ah (Heather Cho), who threw one of the greatest diva-worthy (or perhaps five year-old worthy) public temper tantrums of all-time. An article in the BBC Online, entitled “Former Korean Air executive apologises for ‘nut rage’“, reported that “Ms Cho was onboard a Korean Airlines plane departing from New York for Incheon last week when she demanded a crew member to be removed, after she was served nuts in a bag, instead of on a plate.” Also, according an article in Slate entitled “Flight Attendant Forced to Kneel for Serving Nuts in a Bag (Instead of a Dish) to Korean Air Executive” by Daniel Politi, Ms. Cho was not simply content to disrupt the plane’s service, air traffic control and airport scheduling, he wrote “Just when you thought the whole story about the Korean Air executive who went nuts over some nuts couldn’t get more ridiculous, the head of the cabin crew said he was forced to kneel to apologize about how a flight attendant served some macadamia nuts. Just in case you haven’t been following the case, Heather Cho, the daughter of the airline’s chairman and the executive in charge of in-flight service, forced a plane to return back to the gate at New York’s JFK airport last week after a flight attendant dared to bring her macadamia nuts in a bag and not a dish. Cho forced the head of the cabin crew to get off the plane.”

But the story did not end there. In another BBC article, entitled “Korean Air executive ‘made steward kneel over nut rage’”, the head of the cabin crew also reported that “Once home, officials from the airline came to his home to ask him to say that Ms Cho did not use abusive language and that he had voluntarily got off the plane.” Not to be outdone in this attempt to obstruct the truth and intimidate the witness, the BBC article also reported “Korean Air initially defended Ms Cho, noting that she was responsible for overseeing flight service in her role as vice-president, but the company later apologised.”

Late last year, Ms. Cho was determined to be a flight risk and was detained by Korean police. Song Jung-A reporting in the Financial Times (FT), in an article entitled “Korean Air ‘nut rage’ heiress held as flight risk”, said that Ms. Cho was detained by the Seoul western district court, which was quoted as saying ““There is a risk of flight or evidence tampering…while investigations are under way.””

However, now this piece of privileged child blowhardedness and outright corporate stupidity has taken an even more serious turn. In a Wall Street Journal (WSJ) article, entitled “Rancor Builds of Korean Air Affair”, Alastair Gale reported, “that behavior led to Ms. Cho’s indictment on charges of assault and changing flight plans, both violations of aviation-safety laws. Ms. Cho was also charged with coercion and obstruction of justice after she allegedly ordered company officials to intervene in the government probe into the incident. If convicted, Ms. Cho faces a maximum penalty of 15 years in prison, according to a spokesman for the Korea Bar Association.”

Where is the corporate stupidity here? Gale noted that “Immediately following the incident, Korean Air released a statement saying Ms. Cho had pointed out the service problem as part of her duties and that the captain decided to offload the head of cabin crew. Jung-A also reported “The court added that there were “systematic attempts to cover up” Ms. Cho’s actions since the nut rage incident this month.” This led to the arrest of another Korean Air executive who was accused of “putting pressure on employees to lie to government investigators” about the incident. Unfortunately when the gene pool is limited, not only do you get inbreeding but you also get the results of inbreeding. In Korea, they even have a name for it – Chaebol. 

As noted in the Gale piece, Chaebol began after the Korean War “when South Korea’s government selected companies to take the lead in industries it thought could thrive internationally. Those companies were guaranteed financing and protected from local competition to help them grow and dri ve the nation out of poverty.” Gale also reported, “Ms. Cho’s tantrum is being held up as an example of the problems that arise when corporate power is passed down family lines. “It is foolish of the owners of big corporations to give their children any role in management unless they show at least a modicum of ability,” conservative South Korean newspaper Chosun Ilbo said in a recent editorial. “The only way to shed the image of rampant nepotism is to place ability before family ties.””

So should Ms. Cho, the Korean practice of Chaebol and the Nut-Rage Affair be chalked up as a whimsy or should this story be featured in the annual Darwin Awards which states, “We watch the watchman watch the watchmen”? Natural selection deems that some individuals 
serve as a warning to others. Who are we to disagree?

The next generation, ever and anon, is descended from the survivors. Nepotism rules exist in well-run corporations for a valid business reason. For if you hire the CEO’s daughter, make her a senior executive with no accountability except to Daddy and she throws uber temper tantrums, you may really have a compliance problem because your corporate culture is obviously sadly lacking.TexasBarToday_TopTen_Badge_Large

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2015

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