National consensus first

The ruling Democratic Party (DP) is pressing ahead with the idea of including labor representatives on boards of directors of companies in the public sector. The move is gaining momentum after DP presidential candidate Lee..

The ruling Democratic Party (DP) is pressing ahead with the idea of including labor representatives on boards of directors of companies in the public sector. The move is gaining momentum after DP presidential candidate Lee Jae-myung last month urged National Assembly standing committees headed by DP to railroad as many bills possible through the assembly. In an earlier meeting with the Federation of Korean Trade Unions, Lee promised to pass a bill to put labor representatives on boards of directors of all public corporations.

The bill is very contentious because corporations by nature represents their own interests, not a specific class. As the term suggests, employees refer to a group of people working for a corporation after signing contracts. If they are to be included in a board of directors, other stakeholders such as customers and creditors also should be. The controversial bill could also get in the way of fast decisions needed for companies. If those directors demand improvement in working conditions at board meetings, it could affect investment decisions and weaken competitiveness of corporations.

In countries that adopted the Anglo-American law system, corporations don’t include labor representatives on their boards of directors. Only Germany adopts such a system. In other European countries, companies allow labor and management to choose systems on their own. But in Germany, corporations account for less than 1 percent of all companies. The rest are limited liability companies (LLC) or limited partnerships (LP) or general partnerships (GP).

The DP needs to understand the German system correctly. In that country, employees are mostly members of a supervisory board, not a management board. As a result, they only have the right to oversee the management board rather than participate in decision-making by themselves. What Lee proposes is a system that allows workers to exercise the right to vote on major corporate decisions. That can easily lead to conflicts instead of efficiently resolving concerns.

Many commercial law experts and business lobbying groups in Korea have opposed the system. If public corporations advocate employees’ right instead of the public’s right, it could hurt the people’s interests above all. If the system is adopted by public entities first, its spread to the private sector is just a matter of time.

If the DP railroads the bill, listed companies with more than 2 trillion won ($1.7 billion) in assets could be an easy target even though they are subject to thorough regulations by the Fair Trade Commission. The bill must go through a democratic process to build a national consensus.