Stop the parachute appointmentsKT Corporation Chairman Lee Suk-chae has submitted his resignation, saying he no longer can watch his employees suffer. He was indicating that he was being pressured to leave office as the prosecution raided the country’s largest telecommunications company for the second time. Lee, who started his second three-year term in March 2012, is accused of committing a breach of trust in several real estate deals. Media reported that a former senior presidential aide met with Lee to convey the president’s wish that he should step down.
Lee is suspected of irregular business practices and raising slush funds. He should be punished for abusing his power. But the problem is that it has become customary for chief executives of large formerly public companies to be pushed out of office dishonor before their terms end every five years when a new president is elected. The by-products are the so-called CEO risk factor in major enterprises like KT and Posco. Chief executives of large-capitalization companies are replaced within the first year of a new administration.
Lee’s predecessor Nam Joong-soo, who was close to former President Roh Moo-hyun, stepped down in November 2008, nine months into the Lee Myung-bak administration. Nam was arrested after a prosecution investigation. The country’s largest steelmaker goes through the same tradition every five years. Yoo Sang-boo had been replaced in 2003 soon after Roh took office and so did his successor, Lee Ku-taek, when Lee came to power.
The repeated CEO risk undermines corporate credibility and management. KT’s net profit in the third quarter plunged by more than 60 percent from the same period a year ago. Posco’s operating profit that exceeded 20 percent slumped to 5.7 percent last year. KB Financial Group’s net profit recovered some in the third quarter after a bad first half, but it is underperforming compared to last year. KT, with assets of 35 trillion won ($33.0 billion), is the 11th-largest Korean company and Posco the sixth, with assets of 81 trillion won. An excess of 100 companies undergo a management hiatus every five years. Public companies sneer that their CEOs are busy playing up to the bigwigs who helped them win the title and later to those who can help them keep their jobs.
KT, Posco and other big corporations were privatized a decade ago. The government has not a single share in them. Yet all the CEOs have been the people of the president due to the tradition of “golden parachutes.” The government must declare hands-off from appointments. Those companies must build a new tradition of fostering heirs apparent to fend off political interference.