Conference on

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Conference on Privatization, Employment and
Employees Istanbul, Turkey Worker Participation
in Privatization in Korea
10-11 October 2002 Il Chong Nam KDI School of
Public Policy and Management Korea
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1. Key Aspects of SOEs in Korea ? There are
16 GOCs and 9 GICs in Korea ? GOCs
(Government-Owned Corporations) - More
rigid and government-like management more
closely identified with the
functions of the government itself -
Generally run as a subsidiary of the line
ministry in its pursuit of the industrial
policy objectives ? GICs
(Government-Invested Corporations)      -
Considered to have stronger commercial elements
than GOCs - KT (Korea Telecom) has
recently been fully privatized. ?
Anglo-Saxon Style Board Structure for GICs and
GOCs ? All the board members are selected
from outside of the government ? CEOs were
granted rather weak monetary incentives
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ltTable 1 gt Key Statistics on Government-Owned
Government-Invested Corporations (Unit
Persons, , 0.1 billion won)
Source Companies annual reports. Note
Classification of GOCs and GICs is as of 1997.
10 Note 1999.
 
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ltTable 2gt Main Business and Market Position of
Government-Owned and Government-Invested
Corporations
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ltTable 2gt Main Business and Market Position of
Government-Owned and Government-Invested
Corporations
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(No Transcript)
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ltTable 4gt Financial Ratios of the Big Six




(Unit , times)
Source KDI.
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• 2. Corporate Governance of SOEs
• ? GOCs (essentially) 100 owned by government,
  except for KEPCO
•  
• ? GICs
• ? Mixed ownership for most public enterprises
  with high commercial elements
• ? Decreasing government ownership and increasing
  foreign ownership
•  
• ? Dominance by the line ministry, priorities
  given to policy objectives
• ? Generally perceived as a policy instrument of
  the line ministry
• Line ministry playing a dominant role in making
  key decisions, appointing directors
• and CEOs
• Separation among industrial policies, regulatory
  policies, and commercial operation
• of a public enterprise or a government agency
  is generally unclear

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? Roles of the line ministry ? Shareholder ?
Promoter of industrial policies ? Regulator (in
network industries)    ? Other government
agencies involved ? Ministry of Planning and
Budget Agency in charge of privatization,
internal restructuring for improving
efficiency ? Ministry of Finance and Economy
Manager of government properties,
including shares of public enterprises ? Office
of Inspector General Auditor ? National
Assembly Auditor of all public institutions,
including public enterprises   ? Still,
commercial SOEs perform better than large non-SOE
firms
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3. Recent Developments in Privatization of
SOEs ? 1997 Special Act on Privatization ?
Transforming KT, KTG, and KOGAS into GICs, and
allowing stronger profit orientation ?
Prohibiting chaebol takeover by requiring a 15
ceiling on individual ownership ? Establishing an
Anglo-Saxon style governance structure   ?
Divestiture ? Full privatization KT, Korea
Textbook, Korea Technology Banking (KTB), Korea
Chemical, Daehan Oil Pipeline ? Partial sales of
shares KTG, KEPCO, KOGAS, Korea Heavy, POSCO,
etc.   ? Government ownership and control of the
financial sector has increased since 1998
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4. Worker Participation in Privatization of
SOEs ? Employee stock ownership system in
Korea ? Up to 20 is allowed to be set aside for
workers' associations. ? Discounts are not
allowed for shares of SOEs to be privatized. ?
Discounts of up to 30 were allowed before
1994. ? Mandatory deposit period of 1 year. ?
Early withdrawal is allowed if certain conditions
are met.   ? Members of the ESOA of a company can
purchase company shares only in one of the
following cases ? Purchase of shares set aside
for the association in public offerings ?
Purchase of shares held by dominant shareholders
of the association ? The company gives bonuses or
retirement funds in the form of the shares of the
company ? Purchase of shares by the association
in the market ? Purchase of shares sold by
members of the association who withdraw their
shares from the association
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? Tax incentives for the investments in and
contributions to the employees' stock ownership
programs ? Tax deduction on contributions by the
firms ? Tax benefits for investment in and
earnings from the shares in ESOP   ? As of June
2001, 680 listed companies have ESOAs ? 1,012
non-listed companies have ESOAs ? Average share
held by each association is less than 1  
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ltTable 5gtStatistics of Employee Stock Ownership
Associations (ESOAs)
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? All "Big Six" have ESOP ?
POSCO, KEPCO, and KT gave discounts to their ESOA
members until 1994   ltTable 6gt Examples of
Public Enterprises that Gave Discounts to ESOA  
 
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ltTable 7gtKey Statistics for ESOAs of the Big Six
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? Employee buy-out denied to Korea Power
Engineering Co. (KPECO), a subsidiary of KEPCO ?
KPECO is currently 98 owned by KEPCO and 2 by
the government ? KPECO is up for sale ? ESOA
members of KPECO proposed to buy 51 of shares
Role of ESOA in the governance of the firm is
limited ? There is considerable uncertainty as to
the nature of the ESOA as a corporate governance
agent ? ESOA played no role in governance of
private firms ? ESOA played no role in governance
of SOEs
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5. Problems and Issues ? ESOP system in Korea is
undeveloped and inadequate in many respects. ?
ESOP is a new and unfamiliar institution in
Korea. ? Employees have little incentives to
participate in ESOP or maintain long-term
ownership ? Employees' buy-outs are not a
realistic option for privatizing large SOEs in
Korea being privatized. ? The nature of ESOA as a
corporate governance agent is very unclear