[Viewpoint] Kicking the habit of ‘parachuted’ CEOs

Long-held practices are hard to uproot and reform - particularly bad ones. In Korea, one such custom that continues to plague the business circle is the government’s handpicking of CEOs for major companies, even those that are no longer public entities.

This issue came to the fore recently as Posco Chairmen Chung Joon-yang and KT CEO Lee Suk-chae received nods at their respective shareholders’ meetings in March to serve for second terms.

However, even though they won approval from their boards and shareholders, their jobs are by no means guaranteed - especially if there is a power hand-over at the head of the government following the presidential election in December, which could result in the two men having to yield their seats.

Lee recently stressed that companies need managerial sovereignty to keep their competitive edge in the market, and that running an “ownerless” company is pure folly. His comments, made during a public lecture, served as an indirect criticism of the government for meddling with a company that no longer is a public entity. Lee is in a position to speak on the subject authoritatively as he has served in high-ranking seats at the Ministry of Strategy and Finance as well as the Ministry of Information and Communication.

The government holds no stake in Posco, whereas foreign investors own more than half of its equity. Similarly, KT was privatized a decade ago. It seems that, come what may, the government cannot break its revolving-door habit. Companies’ boards are supposed to guarantee the sovereignty of management; but in such cases as these, this is just a theoretical abstraction.

It has gotten to the point where, even though there is no such thing as an “ownerless” company, this is precisely how Lee describes the telecom giant, which has assets worth billions or even trillions of won. In fact, public companies are often referred to as such in South Korea.

Public enterprises are state properties and the government is designed to serve the people - making the general population the de facto owner of public companies. However, if the situation has gotten to the point where we consider them ownerless, the government is not representing the interests of the public as it should and can be seen as abusing its authority.

As bureaucrats have lost much of their commitment to serving the people, public companies increasingly look like trophies held by the ruling power. Politicians habitually say they must respect and even fear the people; but in reality, the public is the last thing on their mind when it comes to overseeing companies.

The state has no authority over Posco and KT, but the government still has its hands deeply involved in their managerial affairs.

Former Posco Chairman and CEO Lee Ku-taek resigned from his post in January 2009 with a year remaining in his term. Park Young-joon, who was jobless after he left his position as a presidential aide for planning and coordination in 2008, was said to have interfered in finding a replacement for Lee. Such meddling in state enterprises may be acceptable, but influencing the affairs of private companies using loopholes in their ownership structure is not.

Chief executives of financial companies are equally vulnerable to the prevailing political winds. The current top executives of the country’s largest financial holding companies - Kookmin, Woori, Hana and Korea Development Bank - are well-connected to political bigwigs and government officials.

Banks have also long been at the mercy of the governing power. Banks and large financial institutions routinely change their CEOs once a new president is sworn in, despite the country boasting that it has joined the advanced ranks of world nations as the 13th-largest economy.

If this practice of revolving CEOs every five years when there is a shift in power continues, companies’ management will become disjointed and will be impossible to pursue consistent, long-term strategies. Eventually, they will surrender their corporate identities. As such, it’s high time to bid farewell to this hard-to-break habit.

*The author is the head of the JoongAng Ilbo Economic Research Institute.

by Shim Sang-bok

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