IBK, Full-Scale Launch of Labor-Recommended Director System... Concerns Over Labor Governance Following Government Control

Financial Sector's First Expected? Attention Focused
Possibility of Expansion to Private Financial Sector as Policy Banks and Financial Public Enterprises Settle
Friction Inevitable When Management Intervention Is Excessive

[Asia Economy Reporter Park Sun-mi] The IBK Industrial Bank of Korea (IBK) labor union is pushing to introduce a labor union recommended director system ahead of the expiration of the terms of two outside directors in February and March. If the labor union recommendation system is confirmed, it will be the first introduction in the financial sector. There is also a growing possibility that the labor union recommended director system will spread to national policy banks and all financial public enterprises in the future. Concerns have been raised that the competitiveness of financial institutions, which suffered from government-controlled and political finance last year, could further deteriorate due to the expansion of labor union management intervention.

According to the financial sector on the 12th, the IBK labor union plans to select and recommend candidates for outside directors so that the labor union recommended director system can be introduced before the term of outside director Kim Jeong-hoon expires next month. The candidate recommendation is being considered to be conducted in a public recruitment format that also gives the general public an opportunity to recommend outside directors. This is to emphasize that the labor union recommended director system is not only for the benefit of the labor union but also for consumer protection and public interest.

The IBK labor union is also pushing for a revision of the articles of incorporation that includes the provision allowing the labor union to recommend one outside director, so that the labor union recommended director system can be institutionalized and regularized rather than being a one-time event. The labor union already laid the groundwork for such discussions between labor and management by raising the introduction of the labor union recommended director system as an agenda item at the labor-management council held at the end of last month.

A labor union official said, "We will ensure procedural fairness through a public recruitment format so that the candidate recommended by the labor union next month can become an outside director," adding, "Our goal is to regularize and institutionalize the labor union recommended director system through amendments to the articles of incorporation."

IBK Industrial Bank of Korea, Possibility of Being the First Bank to Introduce Labor Union Recommended Director System

In the industry, there is a high possibility this time as IBK President Yoon Jong-won promised to discuss and negotiate the labor union recommended director system upon his inauguration, and the government and labor agreed last November to strive for its introduction before the amendment of the Public Institution Operation Act that allows the introduction of labor directors in public institutions.

Previously, KB Financial Group attempted but failed to introduce the labor union recommended director system. However, if IBK becomes the first in the financial sector to introduce it, the system is expected to be established in national policy banks and financial public enterprises such as KDB Industrial Bank, Korea Eximbank, and Korea Credit Guarantee Fund, and then spread to the private financial sector.

However, there are concerns that if the labor union's management intervention goes beyond a certain level, conflicts with management could arise, potentially weakening work execution and competitiveness. National policy banks and financial public enterprises are already criticized for losing competitiveness due to the practice of appointing high-ranking officials from bureaucrats and politicians. They now face the burden of having to endure strong labor union influence on top of government-controlled and political finance.

Especially amid the government's push for public institution reform, such as transitioning from the existing seniority-based pay system to a job-based pay system where objective job value is reflected in wages, stronger labor union influence could exacerbate discord between labor and management. President Yoon Jong-won’s remark at last year’s National Assembly Standing Committee on Finance, Trade, and Economy that "the labor union recommended director system has the advantage of gathering diverse opinions and increasing predictability when managing an institution," but "excessive intervention can cause problems," reflects these management concerns.