Korean time, 7:50 AM.
On Hawaiian Airlines flight HAL745 from Las Vegas to Hawaii, a mid-air explosion of L6 occurred aboard the aircraft. The L6 in a passenger’s pocket exploded, causing burns to passengers’ thighs and fingers, leading the airplane to make an emergency landing just 30 minutes after takeoff.
Passengers were reported to have exchanged the L6 the day before as part of a recall. This news spread immediately to global media outlets, prompting all airlines in the U.S. to ban the carrying of L6 in both cabin and checked luggage.
In Korea, urgent news reports were shared as passengers who possessed L6 were shown stranded at airports unable to proceed.
8:35 AM.
An emergency meeting was convened at the Seosung Electronics headquarters in Gangnam. Black sedans steadily entered the parking lot of the Gangnam headquarters. President Jo Dong-jun of the IM division and executives, including Vice Chairman Lim Jin-yong, were captured by the broadcast cameras.
9:00 AM.
Immediately after opening, Seosung Electronics plummeted by a staggering 10% as trading commenced. The KOSPI index also dropped by 38 points.
Foreign investors unloaded their positions in futures and stocks, dumping Seosung Electronics shares. Subsequently, institutional investors also engaged in selling, causing a decline of up to 13% by the afternoon session.
Investors’ focus was solely on the Gangnam headquarters.
Countless articles were posted on the internet. Brokerage reports poured in, mostly recommending buying Seosung Electronics shares with no sell recommendations.
During the financial crisis, Seosung Electronics stock price fell to the high 300,000 won range. At that time, investment expert Director Park Il-chan remarked, “The opportunity to buy Seosung Electronics at this price will not come again.” Subsequently, Seosung Electronics shares increased more than fourfold, proving his statement correct. Similarly, despite the unprecedented event of the L6 explosion, this appears to be a short-term setback. For insightful investors, now is the best opportunity to buy Seosung Electronics shares at a low price.
“Is now a good time to buy?”
I muttered in disbelief.
“These crazy people… If they think it’s so good, they should buy some themselves.”
Institutions were recommending aggressive buying, yet they were pouring out selling orders themselves. What kind of contradictory behavior was this?
Thanks to the continuous rise in articles and reports, while institutions were all selling, individuals were struggling to support the buying.
Of course, individuals are not fools. The reason for their buying might be the judgment that they could avoid the worst-case scenario of discontinuation.
After the meeting and the plan is announced, the plummeting stock prices will likely rebound.
What choice will Seosung Electronics make?
—
Seosung Group headquarters in Gangnam, conference room.
Not just the IM division, but the entire executive team gathered in the conference room, excluding those on business trips.
These gathered individuals were nothing less than the brains behind Seosung Electronics, South Korea’s top company. Their combined salaries easily exceeded billions.
The reason they were gathered in one place was the unprecedented event of the L6 explosion. Hence, everyone sat in the room with dark expressions, speaking very little.
“Vice Chairman is coming in.”
As Im Jin-yong entered the conference room, the executives all rose from their seats.
“Please be seated.”
Im Jin-yong took the chairman’s seat. The original occupant of that seat had collapsed a year ago and was still hospitalized. Even if he recovered, it would be difficult for him to return to the management front line.
Im Jin-yong was only titled vice chairman, but effectively, he was no different from the chairman of Seosung Group.
He looked around at the executives and said, “I believe you all know the current situation. If the battery was the issue, why did the product explode after the battery replacement?”
The executives’ gaze turned to President Jo Dong-jun of the IM department.
President Jo Dong-jun spoke up.
“The cause of the explosion is currently under investigation.”
“How long do you think it will take for the results to come out?” Jin-yong asked.
President Jo Dong-jun replied, “It could be as soon as a week, but more time is needed to accurately determine the cause.”
The problem was rushing into a recall.
Even if it takes time, they should have found and handled the cause thoroughly.
“Is there a solution?” Director Kim Myung-soo, who was in charge of future strategies, said.
“For now, we need to buy time with the recall announcement and find and resolve the cause in the meantime.”
“Are you suggesting another recall?”
“Buying time is a priority.”
It was no longer convincing to repair now; a recall was the best solution.
The issue was that this was already the second time, and the question was whether they could find the cause in the meantime.
“To minimize losses, that’s the best way.”
There was another option, but no one mentioned it because the expected losses were too great.
The consensus was to delay, find and solve the problem.
Now, the decision was up to the owner.
Jin-yong couldn’t make the decision easily.
“What is truly the best course of action? What decision would my father have made?”
His grandfather founded the company, and his father raised it. Leading the company after his father collapsed was his responsibility.
As he pondered, something caught his eye. On a shelf in the corner of the conference room was a wooden model ship on display.
Im Jin-yong remembered his grandfather carving wood to make model ships in his childhood. His grandfather would sit him on his lap and say, “A company is like Theseus’ ship.”
At that time, he didn’t understand what it meant. He learned about Theseus’ Paradox later on. The ship that Theseus and the young people of Athens returned on had thirty oars. The people of Athens preserved the ship.
The wooden ship rotted over time. As the planks rotted, they were replaced with new ones, and when the oars rotted, new ones were fitted in. Over a thousand years of preserving and gradually replacing parts of the ship, it became difficult to find the original components.
This led the philosophers of Athens to question: Is this ship still the same ship, or a different one? Objects can be replaced one by one until nothing of the original remains, yet it may still appear as the original.
Businesses are the same. Seosung Electronics was established after the Korean War. Initially, it only assembled white goods using technology transferred from Japanese electronics companies.
None of the employees from that time are still with the company, and none of the products produced then are still being made. The headquarters and factories have also been relocated multiple times.
People changed, products changed, locations changed, but Seosung Electronics remained Seosung Electronics. So, what truly defines Seosung Electronics as Seosung Electronics?
A moment of clarity washed over Im Jin-yong. His tangled thoughts were organized into a clear path. As the executives turned their attention to him, Im Jin-yong looked around and began speaking.
“I will discontinue the sale of L6 starting today. Announce that all sold products will be refunded, and promise to provide adequate compensation to consumers who wish to exchange.”
For a moment, unease spread among the executives. Discontinuing was the worst possible choice, one too dreadful to even imagine.
Having to refund all products sold until now and give up future sales was inevitable. The tarnishing of the company’s image was unavoidable.
“Money lost can be earned back, but once a company loses trust, that’s the end. By producing faulty products, we lost our customers’ trust. And by recalling the products without resolving the issue, we lost trust again. This is our last chance.”
The voice was calm, but the tone was firm.
Amidst silence, CEO Jo Dong-jun stood up from his seat.
“I will prepare the statement right away.”
—
1:40 PM.
An emergency press conference was held at the Seosung Electronics Gangnam headquarters.
IM Division CEO Jo Dong-jun stood before the journalists.
With a heavy expression, he read from the prepared script.
“Seosung Electronics has decided to suspend sales and exchanges for the L6. While investigation and precise inspections are ongoing, we made this decision prioritizing customer safety. To all customers using L6, please turn off the power immediately and proceed with an exchange or refund. We deeply apologize once again to our loyal customers, partners, and suppliers for the inconvenience and worry imposed by this situation.”
Everyone was shocked by the unexpected discontinuation announcement.
Journalists bombarded with questions.
“Whose decision was this?”
“What do you estimate the financial loss to be?”
“Do you have any plans for after the discontinuation?”
CEO Jo Dong-jun calmly addressed the journalists’ questions. Over 6 million L6 units had been sold thus far, with an expected sales target of 70 million.
If all of these were to be refunded, a simple calculation would result in a loss of 6 trillion won. When considering the costs of the recall and inventory disposal, the monetary loss increases further.
Not only did the expected future earnings disappear, but the market share decline, corporate image, and loss of trust in the smartphone market were even greater losses.
Experts predicted that Seosung Electronics’ losses from this incident would range from a minimum of 20 trillion to 50 trillion won.
As the press conference ended, individuals shifted from buying to selling, following the selling by foreign investors and institutions, leading to programmatic selling, causing Seosung Electronics’ stock price to hit the daily limit down.
With no more buy orders, only sell orders kept accumulating.
As Seosung Electronics, with the largest weighting in the index, plummeted, the KOSPI index quickly dropped by over 100 points, triggering a circuit breaker and halting trading.
The KOSDAQ couldn’t escape the fallout either. Although Seosung Electronics was not included in the index, IT-related component stocks were heavily hit.
In a situation where Seosung Electronics hit the limit down, small and medium-sized companies supplying Seosung Electronics had no way out.
The related component stocks all hit the limit down.
Compared to the KOSPI, individual investors have a much higher proportion in the KOSDAQ.
As individuals started selling, unrelated pharmaceutical and travel stocks began to fall.
Trading on the KOSDAQ was halted for 5 minutes as a circuit breaker was triggered.
While circuit breakers being activated on the KOSDAQ are somewhat common, this was the first time it happened on the KOSPI since the financial crisis.
After 5 minutes, trading resumed, but the downward trend couldn’t be stopped. In fact, there was a fear that it might fall even further as time passed, causing everyone to sell their stocks.
The KOSPI fell by 6.3% from the previous day’s closing, while the KOSDAQ fell by 8.7%.
It was the beginning of what would be remembered as a Black Tuesday in the history of the Korean stock market.
