Bystander effect and the BOA

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Bystander effect and the BOA

In March 1964, a woman named Catherine “Kitty” Genovese was raped and stabbed to death in a neighborhood of Queens in New York City as she returned home from work late at night. The attacker was a Queens native named Winston Moseley who later confessed that he was roaming the street intending to “simply kill a woman.” She was attacked twice in the back outside her apartment and again while trying to run away desperately crying out for help. Her ordeal lasted 35 minutes and at least 38 witnesses had heard or saw the crime.

None, however, stepped up to stop, help or bothered to call the police. The collective and callous indifference of a crowd was coined after her as “Genevese Syndrome” by psychologists and is more commonly known as the “bystander effect.” Since then, people in trouble have been advised to point specifically at someone for help as crowds of people are much less likely to intervene than individuals.
The same strategy can help in corporate restructuring, which involves many parties. The more people involved, the greater the risk of the bystander effect.

A commander should be specifically designated to keep the operation in focus. But so far, the government lacks one. Ministers in charge of economy-related affairs gathered at the presidential office last month and discussed who should be in charge. They agreed that decisions should be made at a cabinet meeting and the operation carried out by the state-run Korea Development Bank, which is the major creditor to most large shippers and shipbuilders in trouble. No single person or office was named to take command.

One official dubbed Mr. Restructuring advocated for the ministers.

“No one would dare to step up. They have seen it all before. All you get from consolidating a company or selling in bits for industrial reorganization is an outpouring of resentment and criticism,” he said. “There would be controversy about either fire sale or favoritism. Either way, you could end up in prison in the next administration. Those who call for restructuring — mainly politicians, media, and scholars — are on a witch hunt. We have seen this happen over and over for 20 years. Who would want to take the fall?”

Just look what happened to Byeon Yang-ho, founder of VIG Partners, who recommends the Board of Audit and Inspection (BOA) should change first. Bureaucrats refrain from making risky decisions after having seen Byeon, the hard-working former finance ministry official, go to jail simply for doing his job — approving the $1.2 billion sale of Korea Exchange Bank to private-equity firm Lone Star Funds in 2003.
The watchdog should focus on punishing people that don’t do their job rather than those who do, Mr. Restructuring said.

“The president and ministers should be responsible in the end. Prosecution probes can follow. Government officials should be accountable for neglecting the job of carrying out timely restructuring and deregulation action or turning a blind eye. It is the only way to end the legacy of Byeon Yang-ho syndrome in bureaucratic society.”

Looking back, Lee Hun-jai, former deputy prime minister for economy, says the best thing he had done in his public service career was volunteering for a BOA audit. Lee, then the chief of the Financial Supervisory Commission, asked his BOA counterpart to carry out a special probe of his organization in May 1999 for any wrongdoing or negligence in its supervision of the financial sector and bringing of the international bailout following the financial crisis in 1997. He was the first to demand a probe of an organization he was heading.

“The decisions made at the time of a crisis cannot be evaluated with the same criteria of post-crisis peace time. What had been deemed the best choice at the time may not appear so after the market is revived and returns to business-as-usual,” he said. It was a preemptive move to avoid Byeon’s fate who spent 300 days in prison for selling KEB to a so-called predatory foreign fund.

Lee wielded mighty power as the FSC chief spearheading restructuring of overcapacity industries and chaebol groups. He was incessantly dogged by critics and plots and had his financial accounts scrutinized. He gave out strict orders to his aides not to take any form of money, but nevertheless was always suspected and accused. He knew the restructuring sword would end up being aimed at him.

After the BOA’s probe of the previous government’s major agendas, the green growth policy has been wrecked and overseas resources development toppled. The four-river project also was sabotaged and is in tatters. The rigid criteria of the BOA shakes every new administration. Who would want to assume responsibility under such scrutiny? Leaving the BOA to proliferate the bystander effect in the bureaucratic society has been the biggest public policy blunder.

JoongAng Ilbo, May 26, Page 30

*The author is an editorial writer of the JoongAng Ilbo.

Yi Jung-jae
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