The effects of the revolving door
There was a good reason why Daewoo Shipbuilding and Marine Engineering incurred massive operating losses of 3.2 trillion won ($2.7 billion) in the second quarter. A recent parliamentary investigation on state affairs zeroed in on the shipbuilder’s management, overseen by a state bank.
The company was in the hands of executives not only from its largest shareholder, the Korea Development Bank (KDB), a government-run bank, but retired officials from the military, the National Intelligence Service (NIS) and other government offices. More than 60 bureaucrats, referred to as consultants and advisers, had been taking home handsome salaries since 2004, and their compensation packages included corporate credit cards, cars and office rental fees that amounted to over 10 billion won.
Daewoo Shipbuilding was separated from the now-defunct Daewoo Group and salvaged with tax money of nearly 3 trillion won. So tax money basically went to waste if negligence and reckless management caused massive losses to the company. Its largest shareholder KDB - responsible for the struggling shipbuilder’s management - is also seated by former bureaucrats and politicians. That means there’s no mechanism in place to keep Daewoo in check.
Naturally, no one feels accountable for the company’s poor state. KDB’s executives all looked the other way when they were questioned by lawmakers during a government audit about the losses.
KDB Chairman Hong Ky-tack claimed the chief financial officer dispatched by his bank could not entirely oversee the shipbuilder from its production to its expenses. Daewoo Shipbuilding’s current and former presidents as well as the company’s accountant all tried to excuse themselves, arguing that they hadn’t been aware of the losses.
The president ordered multibillion-dollar offshore plant projects, the CFO approved them and the accountant seconded them, without any sort of proper deliberation. What’s worse, the company’s debts are only likely to increase next year.
The losses could amount to between 1 trillion won and 2 trillion won, what may again have to be covered by tax money. This is the very consequence of revolving-door practices, and Daewoo Shipbuilding’s case underscores the damage corrupt managers can cause to a company - as well as the price the country ends up paying.
JoongAng Ilbo, Sept. 23, Page 38