Unions hold considerable sway at public companies

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Unions hold considerable sway at public companies


The retirement age for employees of the state-run Korea Elevator Safety Technology Institute (KEST) is about 65 years old.

The labor union came to that agreement with the company’s management in 2007. It’s an increase of seven years - from 58 for technicians and from 62 for administrative employees.

At the time, the labor union also quietly added clauses, greatly expanding workers’ benefits. The contract conditions included a five-day holiday for the 60th birthday of an employee or their spouse, and even paid personal days during the summer, a total of three or four days.

With a total of 13 special holidays penciled in for employees, the institute also extended cash-paid benefits to workers and full academic scholarships to the children of employees, even if they were planning to attend private schools.

KEST also pays about 1 million won ($947) to employees when they get married or lose their parents - a benefit unheard of in private companies. But the institute is just one example of many public companies in which labor unions hold enormous sway. Typically, about 70 percent of the workforce at state-run businesses joins the union. Most managers feel the need to appease them, not wanting to risk the possibility of a strike, which would paralyze operations - or possibly the entire country.

According to material exclusively obtained by the JoongAng Ilbo on Friday, about 295 public companies are misusing their budgets and are showering their employees with excessive benefits and incentives, despite the fact that their collective debts have reached nearly 500 trillion won.

Additionally, there are currently more than 40 public companies that hire the spouses or family members of employees who die on the job, according to an investigation by Representative Lee No-keun. Fifteen of those businesses hire family members regardless of the cause of death.

In response, the administration of President Park Geun-hye is planning to announce new measures to crack down on questionable business practices at public companies by the end of this year. One of those plans included dismissing the heads of state-run businesses who haven’t revised labor union contracts that allow excessive benefits.

The government’s decision to overhaul public organizations came after a growing number of them began racking up an enormous amount of debt. Statistically, the debts of the 41 major state-run companies nationwide are expected to surge by up to 520.3 trillion won by the end of this year - about 244.6 percent of their total assets.

But that’s just part of the problem.

Parachute appointments have also long caused inefficiency within companies. With the start of each new administration, the heads of the public companies are selected by the incoming president and are ordered to launch large-scale, state-run projects. To implement those projects, chief executives rally support from employees by offering them excessive benefits and unduly high wages.

Many labor unions have protested parachute appointments, not because of issues with the transparency of companies, but because they’re looking out for their own self-interests.

In May 2005, when a new executive of the Korea Exchange (KRX) started his first day of work, union members who protested his appointment threatened him with violence and hurled verbal slurs. He tried to enact punitive measures later, but his co-workers dissuaded him from doing so, insisting the incident was just part of the company culture.

Similarly, in April, the labor union of the Korea Development Bank also staged a rally protesting the appointment of Hong Ky-tack, who had been nominated at the time to head the bank.

“Once the [parachute appointments] face these kinds of protests, they can’t control human resources because of interference from the labor union,” said Lee Man-woo, a business administration professor at Seoul National University.

Labor unions generally look to propose a deal when new executives are struggling, pressuring new managers to maintain current welfare packages for them. After that, if they are accepted, managers are forced to negotiate with the labor union over everything, even small changes, which hinder flexibility and company reforms.

“The key to reform the public companies is to give the management autonomy,” said Kim Jong-seok, a business administration professor at Hongik University.

The government actually has an evaluation system in place to assess the management of state-run businesses, but its credibility is largely inaccurate and the way it’s conducted leaves room for error. To start, out of the 295 public organizations, 178 are excluded from evaluations due to budget constraints and a lack of resources.

Evaluation standards are also lenient, which compounds the issue. According to a report by the Lee Myung-bak administration that evaluated public companies in 2012, Korea Hydro and Nuclear Power got a “B” grade, even though its debt increased by 602 percent that year. Likewise, Korea Land and Housing Corporation got a “C” grade, even though its debts doubled in 2012.

Most companies already know how to manipulate the odds in their favor. Ahead of the annual review, employees at these organizations hire business consultants for advice on how to inflate their scores. Those doing the evaluating usually aren’t industry experts either, so they aren’t able to truly assess problems at the company.

But President Park’s reforms aim to address this issue as well.

To strengthen surveillance on state-run companies, the Committee for the Management of Public Organizations, under the Ministry of Strategy and Finance, will have its status elevated to the level of a major bond bank. The 178 small-size organizations that have previously been excluded from evaluation will now be included.

“The reform of public organizations by the Park Geun-hye administration will not be temporary but steadily intensified over the next five years,” said Yoo Min-bong, senior presidential secretary for state planning. “We will add more companies to the list to be evaluated, and the heads of these organizations will be strictly responsible for their management so that we can resolve [any] problems.

“We will also ask more the ministries to take more responsibility when it comes to the lax management practices of these organizations,” he added.

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