Chairmen of Mutual Finance Running Like Emperors
County Heads → Chairmen → Local Councilors → Chairmen Tactics
Installing Proxy Chairmen, Resigning to Run Again
Different Supervisory Ministries Hinder System Reform
[Asia Economy Reporter Song Seung-seop]
In Cooperative A, the chairman who had completed his term ran for the position of county governor in the region. After being elected as county governor and completing his term, he returned to the cooperative to finish his term. Later, he ran for local council elections to continue his political career and then returned to the cooperative again to serve as chairman. By exploiting the clause that states there is no term limit for chairpersons if they are 'non-standing,' he maintained the chairman position for decades.
In Cooperative B, after the chairman completed two consecutive terms, a new chairman was elected. However, the new chairman suddenly declared resignation and stepped down. In the subsequent by-election, the person elected was the previous chairman. This is a kind of trick using the legal interpretation that the term of the person elected in a by-election is calculated based on the remaining term of the person who resigned.
Financial authorities are understood to have conducted a full survey last year on the governance status of mutual finance sectors. The investigation revealed numerous cases where executives in mutual finance sectors evaded oversight and used tricks to maintain their positions for decades. It is known that financial authorities are deeply considering alternatives to reform the lax governance system.
According to financial authorities on the 18th, cases of long-term reappointment by evading regulatory nets were found in mutual finance sectors such as credit unions, fisheries cooperatives, agricultural cooperatives, forestry cooperatives, and Saemaeul Geumgo. Although most sectors have regulations limiting reappointment, they effectively maintained long-term rule by using certain tricks. In some organizations, chairpersons were reappointed for 37 years, serving ten terms, or maintained their chairman position even after turning 80 years old.
The reason such situations occur lies in institutional shortcomings. Current laws impose a 4-year term and a limit of two consecutive reappointments for all mutual finance sectors. However, the Agricultural Cooperatives Act and Forestry Cooperatives Act include a proviso for 'standing' chairpersons. This means that if a non-standing chairman is elected, they can effectively continue their term without being subject to reappointment limits. According to the Financial Services Union, out of 1,118 regional agricultural and livestock cooperatives nationwide, 462 (41.3%) operate under a non-standing chairman system.
Privatized Cooperatives... "Individual Controls Member Organizations"
Another problem is the lack of market monitoring. Large banks receive support and oversight from financial groups and attract significant market attention. If a CEO uses tricks to nullify reappointment regulations, they are likely to face immediate sanctions from holding company shareholders or financial supervisory authorities. However, mutual finance sectors in local areas are numerous and small in scale, making it difficult to monitor each one. The combined number of cooperatives and credit unions in credit unions, agricultural cooperatives, and Saemaeul Geumgo approaches 7,000.
Within the financial sector, it is regarded that cooperatives have effectively been privatized. A financial authority official pointed out, "Although reappointment regulations differ legally, there are people who have maintained the chairman position in cooperatives for decades through various methods," adding, "The governance issue is serious because individuals operate member companies as if they were their own."
The problem is that finding alternatives is not easy. Each mutual finance sector falls under different supervisory ministries. The Financial Services Commission oversees credit unions, while Saemaeul Geumgo is under the Ministry of the Interior and Safety. Agricultural cooperatives fall under the Ministry of Agriculture, Food and Rural Affairs, fisheries cooperatives under the Ministry of Oceans and Fisheries, and forestry cooperatives under the Korea Forest Service. Because the responsible ministries differ, the relevant laws also vary. To solve the overall problems in mutual finance, it is necessary to coordinate the positions of multiple ministries with differing interests and amend the laws.
Even if governance is tightened, the same tricks are likely to be used. It is difficult to regulate by law the practices such as appointing a figurehead chairman after the reappointment term ends and assigning them as advisors to receive high salaries. On the other hand, if a single-term system is promoted, it may hinder medium- to long-term project implementation and face strong opposition from the industry.
Although more than half a year has passed since the investigation results were released, the reform plan for mutual finance governance remains distant. At the first mutual finance policy council meeting in 2022 held last month, the governance issue of mutual finance sectors was not even included on the agenda. A financial authority official lamented, "Legal and institutional reforms should be carried out at once through the National Assembly, but there is a lack of momentum to push this forward."
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