[VIEWPOINT]Give the suspect a medalWatching the prosecution of Byeon Yang-ho, formerly in charge of financial policy at the Ministry of Finance and Economy, for allegedly initiating the sale of Korea Exchange Bank at a bargain price, I could not help but consider the poor standards of our social system.
The questions raised are those of corruption by individuals who intervened in the sale and the dirt-cheap sale price. The truth of those corruption charges will be decided by a court, but it will never be easy to say if the price asked for the bank was unreasonably low. I worked at the Financial Supervisory Commission and the Public Fund Oversight Committee for five years in all, and I understand fairly well the characteristics of the bureaucracy and the way the government reacts to financial insolvencies. I cannot help worrying about the serious side effects that will be caused by the controversial legal action against the policy initiative to sell Korea Exchange Bank.
In any country, the bureaucracy is not in a position to take preemptive policy initiatives easily. But when banks fail, there is strong possibility that small damage can grow into a huge loss if the problem is left unattended. A swift response, such as selling the financial company or bailing it out, may be necessary, but the bureaucracy moves slowly.
When it is necessary to take pre-emptive action, the government has the necessary detailed information on the bank’s insolvency, but the people do not. So the government will be criticized for selling the bank at a dirt-cheap price if the bank revives later. On the other hand, if the bank’s problem begins to fester and affect the rest of the economy, there will be no objection to a bargain sale or a bailout.
In this asymmetric situation cause by the different amounts of information available, a bureaucrat who avoids taking preemptive measures when necessary can also be called, if not corrupt, at least failing in his duties.
The low standards in our legal and political systems and in the agencies that supervise bureaucratic organizations make it even more difficult to take preemptive policy initiatives. Under a written legal system where it is difficult to interpret the law flexibly, and in a presidential system where the opposition party can be in control of the legislature, it is easy for bureaucrats to become scapegoats. On top of that, the Audit and Inspection Board, the National Assembly, Blue House, the press and civic groups have all made the mistake of judging policy decisions made in the past by today’s standards. It is understandable that civil servants take the attitude of cruising along and avoiding taking any action.
The sale of Korea Exchange Bank to the U.S. equity fund Lone Star was a preemptive policy initiative. The sale was inevitable because the insolvencies of Hyundai Group companies including Hynix were serious. All the big financial companies in Korea, and foreign banks as well, were not interested in touching Korea Exchange Bank. There was no option but to sell it to Lone Star as the last resort. There is a possibility that the Bank of International Settlements ratio, which gives an indication of the solvency of a bank and is affected by subjective elements, was estimated too low in order to facilitate the sale. But that can’t be criticized as a concoction if you recognize that the sale is inevitable.
After the sale, the bank revived, its share price went up and Lone Star, which sought big profits through a high-risk investment, earned a huge amount of profit by selling its shares. Then a controversy over the sale price of the bank erupted, riding on the anti-foreign capital emotion that escalated when Sovereign Asset Management bid to shake up the management of SK Corp., Korea’s largest oil refiner.
Bureaucrats are motivated by duty and pride, not financial rewards. But if a policy initiative to eliminate a source of financial insolvency brings a calamity to the person who took the initiative, bureaucrats will take no action at all.
“Business judgment” is a precedent cited under the Corporation Law. If a director of a company makes a decision involving risk after paying proper attention to all the factors and is sincere in his beliefs, he is free from legal attack even if things go wrong. This principle should be applied to the administrators of public organizations as well. After the foreign exchange crisis of 1997-98 was over, we ignored the “business judgment rule” and committed the mistake of seeking to pin legal blame for the crisis on the deputy prime minister of finance and economy and the senior presidential secretary for economic affairs at the time. This Lone Star incident is even more serious than the previous one because many experts believe the bureaucrat who took the initiative to sell the bank should be rewarded rather than punished. Shouldn’t the senior decision makers who know well the inside story of the sale come forward instead of evading their own responsibility? The director general in charge of the sale should be decorated, not punished.
*The writer is a professor of business administration at Yonsei University. Translation by the JoongAng Daily staff.
by Park Sang-yong