Lax ethics hurt businesses

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Lax ethics hurt businesses

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A dormitory for employees of the Yeongheung Thermal Power Plant in Ongjin County, Incheon, boasts marble walls and a deluxe bath. The accommodation was built by the Korea South-East Power Corporation, a subsidiary company of the state-controlled Korea Electric Power Corporation, using about 2 billion won (1.9 million dollars) of taxpayers’ money. Provided by JTBC

Looking over a spectacular seascape is a luxury bath, well worth about $10,000 (10 million won). The bathroom walls are made of marble, and a waterproof television hangs just above the deluxe spa.

But this is not the bathroom of a five-star hotel or an island resort. Rather, this is the washroom in a dormitory for employees of the state-run Yeongheung Thermal Power Plant in Incheon, a western port city of Seoul.

The dormitory, recently built by the state-controlled Korea South-East Power Corporation (Kosep), is actually set up as a lavish sanctuary for employees. The government financed the construction of this project with 2 billion won ($1.9 million) worth of taxpayers’ money.

Last year, Kosep, under the Korea Electric Power Corporation (Kepco), recorded about 160 billion won of net profit, with a good financial statement. Yet its mother company - which holds 100 percent of Kosep stocks - suffered a huge loss of about 5.5 trillion won.

Similarly questionable is a contract between management at the Korea Infrastructure Safety and Technology Corporation, another state-company, and the members of its labor union.

The contract states that if an employee is indicted on charges in a criminal case that is irrelevant to his position at the company, he can apply for three years of unpaid leave rather than lose his job.

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The contract goes on to say that an employee can apply for a maximum of four years of unpaid leave, specifically if he wishes to start a business.

In an effort to straighten out these kinds of practices at state-run institutions, the administration of President Park Geun-hye recently announced a series of full-fledged reforms, aimed at eradicating lax management policies and corruption.

The plan is part of a series of measures intended to stop corporations’ misuse of state funds, particularly when it comes to wages and employee benefits.

The Ministry of Strategy and Finance, in step with the administration, originally announced plans to crack down on state-run companies in July. But having made little progress since then, it said it would now implement stronger measures to reform state-run organizations, making efforts to lower executive wages and curb employee benefits - which are widely considered to be contributing factors to company debt.

To that end, Prime Minister Hyun Oh-seok held a luncheon on Thursday with the heads of 20 major state-run companies and organizations.

Eight of the organizations represented at the meeting were found to have showered their employees with excessive wages and incentives. These included the Korea Infrastructure Safety and Technology Corporation; the Korea Trade Insurance Corporation; the National Health Insurance Service; Incheon International Airport Corporation; the Korea Workers’ Compensation and Welfare Service; the Export-Import Bank of Korea; the Korea Investment Corporation; and the Korea Housing Guarantee Co.

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The other 12 organizations represented had accumulated massive debts.

“The party is over,” Hyun emphasized at the luncheon. “It is time for us to face the cold truth and focus all our efforts on reducing these monetary risks. If you ran private companies, you would have gone through a number of restructures and layoffs.”

On the same day - perhaps in a telling sign - Moody’s senior vice president announced at a conference co-hosted by the bond credit rating firm and the Korea Investors Service that the debts accrued by Korea’s state-run companies were threatening the nation’s credit rating.

Critics of state-run companies have long complained of widespread parachute appointments and wasteful, expensive projects - which, they say, are two major factors that facilitate graft.

Since 1987, politicians integral to a president’s campaign have generally received well-paying positions at state-run companies. A president can independently appoint as many as 2,000 high-ranking posts, but in many cases this practice has only served to breed the cronyism, inefficiency and corruption rampant at state-run organizations, critics add.

“We need to hold these state-run companies strictly responsible for showing a lack of financial consideration and running wild with taxpayers’ money,” stressed Park Jeong-su, a public administration professor at Ewha Womans University. “The government should also acknowledge the fact that it has excessively interfered with the operations of these companies.”

While President Park has announced her plan for reforms, the results are yet to be seen.

In the past, former presidential administrations have also pledged to improve regulations for state-run companies, but these intentions were met with little success.

Ex-President Kim Dae-jung was one former statesman who struggled to reform public companies. In 1998, Kim launched a “bureau for strategy and budget” and announced “the first plan for the privatization of state-run organizations.”

The policy called for the immediate sale of five state-run companies and 21 of their subsidiaries to the private sector, as well as the gradual privatization of six others. But the plan was scrapped following protests from labor unions and political lobbies.

“Ministry officials tried to protect the public organizations that were under their control, hindering the reform,” said an executive of a private consulting company who participated in Kim’s plan. “Politicians, government officials and Blue House officials all urged [the Kim administration not to reform those companies].”

Former President Kim Young-sam also launched a similar plan, with the goal of privatizing 58 out of 133 state-run companies between 1994 and 1998. However, that plan was also abandoned, as critics claimed that privatization would yield too much economic power to conglomerates.

The administration of Lee Myung-bak faced a similar public outcry in 2008 when the president announced his plan for the advancement of state-run organizations. But his goal, like those before, made little headway.

Several state-run companies have also accrued an impressive amount of debt following ambitious projects by former presidents. Under the Roh Moo-hyun administration, the Korea Land and Housing Corporation had to shoulder about 14 trillion won worth of debt when the government complex was relocated to Sejong city from Seoul.

Likewise, the Korea Water Resources Corporation suffered huge losses after the Lee Myung-bak administration launched the controversial four-rivers restoration project. The plan, first developed in 2009, came under fire for collusion allegations and led to civilian protests and outcry in the National Assembly.


BY SPECIAL REPORTING TEAM [heejin@joongang.co.kr]

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