Misgivings About Worker Directors at Public Institutions

With the bill introducing worker directors at public institutions passing the National Assembly plenary session on the 11th, corporate concerns have become reality. Since the political establishment has signaled an expansion of the worker director system into the private sector, there is a high likelihood that it will eventually be imposed on private companies as well. The worker director system, introduced as part of a pro-union policy agenda, now threatens corporate innovation and the broader economy.

The worker director system legally mandates that employee representatives be given the privilege of participating in institutional decision-making as board members, with both speaking rights and voting power. Given unions’ political style of struggle and the non-cooperative nature of labor-management relations, the side effects of this system are likely to be significant. It is regrettable that the government has moved forward with legislation designed solely for the benefit of unions.

The business community’s concerns over this anti-business legislation are considerable. If unions pursue only their own privileges, companies and workers alike will ultimately suffer serious harm. The government argues that the damage will be limited because the granting of union privileges will stop at public institutions, but this is a flawed analysis. Public institutions also adopt corporate management practices, so managerial efficiency matters there as well. If management becomes inefficient, the burden on the public will grow accordingly through higher taxes.

The business sector has long warned that the worker director system would threaten already weakened corporate management and negatively affect corporate competitiveness. The problem becomes even more serious when one considers the strong possibility that, backed by the current administration’s campaign promises, the system may be extended to private companies. If unions intervene in corporate management, decision-making will become politicized and lead to poor decisions. The worker director system will turn the boardroom into an arena of political conflict.

A company’s core capabilities stem from swift and strategic decision-making. The louder the union’s voice becomes, the more complicated and slower the decision-making process inevitably becomes. If unions succeed in hamstringing corporate management, management itself will effectively be paralyzed. That is because unions, once they gain the upper hand, will prioritize union privileges over corporate performance. To the extent that this damages the essential nature of the firm, workers and investors will inevitably suffer substantial harm. This is a loss for companies and a major loss for consumers and the public as well.

It will also have a negative effect on attracting investment. Foreign investors are highly sensitive to union intervention in management, and with the implementation of the worker director system, they are also likely to avoid investing. In an open investment environment, this will become a major risk factor for our companies. A contraction in investment leads in turn to a contraction in employment and weaker corporate performance. There is also a real possibility that our companies, seeking to avoid the worker director system, will establish overseas subsidiaries, causing domestic capital to flow abroad. The legally mandated introduction of worker directors will only worsen corporate governance structures. Even in Germany, the worker director system is falling out of favor.

That is because German businesses, too, are moving away from this outdated system. The government is pushing our corporate governance backward through an anachronistic approach. Unions and the government cite Germany’s adoption of such arrangements as justification for introducing the system here, but this is mistaken. The labor-management systems of Korea and Germany are fundamentally different. Moreover, what Germany has adopted is not even a worker director model. This is a serious mistake that departs from advanced forms of labor-management cooperation around the world and instead strengthens union privileges.

In Germany, unions are organized by industry, so collective bargaining takes place between industrial unions and employer associations. In other words, unions are not organized within individual companies. In contrast, in Korea unions are organized by company rather than by industry, so collective bargaining takes place between the management of individual firms and their unions. Korea’s labor-management conflict is severe even by global standards. The worker director system will do nothing but undermine labor-management harmony and balance while deepening conflict.

The worker director system is undesirable for both companies and workers. Introducing such a system while neglecting improvements to the business environment may generate unnecessary managerial and social costs. Efforts are needed to reduce the side effects of the worker director system. Institutional improvements are required so that worker directors at public institutions do not act merely as representatives pursuing union privileges, but instead can play a role that takes into account the interests of workers, managers, and the public.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: 공공기관 노동이사제 유감

Author: Sung-no Choi

Date: 2022-01-18

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=24512