The head of South Korea's Hyundai Motor Group, the world's sixth-largest auto maker, should hear on Thursday the result of his appeal against a 3-year jail sentence for fraud and embezzlement.

For many, the case of Hyundai Motor Co Chairman Chung Mong-koo illustrates a wider struggle to change management practices at chaebol, the giant family-dominated companies which propelled South Korea to become Asia's fourth-largest economy.

The charismatic 69-year-old was handed a three-year jail term earlier this year by a lower court for embezzling company money and setting up slush funds to prop up affiliates.

A high court rules on his appeal against the conviction on Thursday.

The trial has put the spotlight on South Korean authorities' attempts to reform the powerful chaebol conglomerates, which led the rebuilding of the economy after the 1950-53 Korean war but which took much of the blame for the financial crisis of the late 1990s.

Many in the country's auto industry have been urging the court to keep Chung out of prison so he can continue to help the economy. His group alone accounts for about 7 percent of the country's exports.

Chairman Chung is the captain of the Korean auto industry. He helped upgrade the industry with his great knowledge of business, Kang Chul-koo, general director of the Korea Automobile Manufacturers Association, told Reuters.

We need such a leader to cope with looming threats like Chinese carmakers.

Chung was arrested in April 2006 but released on $1 million bail after spending two months in jail.


Given the economic stakes, some lawyers and auto analysts expect the court to hand Chung a suspended jail term and, in a nod to Hyundai's importance to the economy, keep him at the company's helm.

South Korean automakers have seen exports jump almost 20 percent in the first eight months of the year from the same period in 2006.

But fierce competition and the potential fallout from the U.S. subprime mortgage sector could hit Hyundai and other local makers. Hyundai this week cut its 2007 sales target for China and the United States.

In a sign of his continued prominence despite the guilty verdict, Chung was recently named honorary chairman of the bidding committee for the Yeosu Expo 2012, tipped to generate more than 4 trillion won ($4.26 billion) for the economy if it is chosen.

Chung can also look to a high-profile precedent. In 2004, the same court which will decide his fate suspended a three-year jail term for fraud for Chey Tae-won, chief executive of SK Corp, the country's top oil refiner, so he could carry on running the company.

But some industry officials say there is a profound need to change management style at Hyundai, where Chung is heavily involved in most decisions.

His autocratic style prevents his people from telling him what he doesn't want to hear, said an official at a local car maker, asking not to be identified.

The official said investor concerns over a management vacuum due to a possible jail term for Chung underlined how much the group relied on the chairman.

Shares in Hyundai Motors have struggled this year, with its 7 percent rise less than a quarter of gains seen in the benchmark KOSPI market.


Hyundai is just the tip of the iceberg of problems in many South Korean companies' corporate governance.

On Sunday, the country's antitrust body said families behind the top 43 conglomerates owned an average stake of just 4.9 percent but exerted 44 percent of the power through complex ownership structures.

A stint in jail for Chung would help wake up the other chaebol, activists say.

A real, severe punishment of Chung will be an important message aimed at the chaebol, Park Kun-yong, chief economy coordinator at People's Solidarity for Participatory Democracy, one of the biggest proponents of chaebol reform.

Chung is expected to appeal to the Supreme Court if the high court hands him a jail term. But his chances of success are low as the Supreme Court has shown reluctance to reverse high court sentences, as evidenced by a reversal rate of less than 5 percent for this year.

Chung is the eldest surviving son of the late Chung Ju-young, who founded the Hyundai Group in 1947 and Hyundai Motor in 1967. He took control of Hyundai Motor in 1999 from his uncle Chung Se-young, who is credited with Hyundai's rapid growth and was nicknamed Pony Chung after the company's first car model.

Chung Mong-koo's son, Chung Eui-sun, is president of Kia Motors Corp, Hyundai's affiliate.

A younger brother, Chung Mong-hun, managed the electronics and construction business of the Hyundai empire until August 2003 when he committed suicide while under investigation for illegal transfer of money to North Korea.