Management Reckless at Korea Securities Depository

The Dong-A Ilbo obtained the proceedings of the board of directors of the Korea Securities Depository on Friday. The records revealed that the organization had been managed recklessly, something which appears frequently in organizations that do not face competition. The KSD turned out to be the most benevolent among state-owned firms and organizations last year. KSD workers received an average of 96.77 million won of annual salary last year.

When a participant pointed out that too much budget was allocated to mid- and long-term business plans at the board of directors` meeting in 2007, a director calmly answered, "Trade volume in the market has already grown enough to support the KSD."

It also turned out that the board of directors puts priority on the perspective of outsiders over labor productivity when dealing with policies related to wage levels. An inspector made the odd statement, saying, "Could we avoid social criticism if our labor cost goes up by 19 percent?” The official added, “I hope outside directors will say that the president`s salary is low."

Some outside directors also pointed out other problems but they were covered up. One outside director said, "I`m raising the issue at the board of directors` meeting since employees have not made any reforms even when their problems were pointed out."

Outside directors frequently pointed out problems related with the intra-corporate labor welfare fund. Governmental agencies create the fund with their own net profit. Since the government’s control over the fund is weaker than the control over governmental agencies` budget, some have used the fund to illegally raise wages.

When an outsider director argued, "We need to cap the fund at 18 billion won," at a meeting of the board of directors in December 2006, then-President Jeong Eui-dong just answered, "I don’t think there are any serious problem over the near term."

At a board of directors meeting in November 2007, the suggestion was raised to introduce a `cafeteria benefit` system through which employees could choose which benefits they would get within the set amount of welfare grants. An outside director objected, saying, "The cafeteria benefit system should be introduced to make the firm’s welfare system more effective, instead of expanding it." However, a month later, the board of directors decided to inject 2.5 billion won into the cafeteria benefit system.

Some of the intra-corporate labor welfare fund was spent on vague items, such as funding for cultural and sports activities and funding for celebrations. When an outside director criticized this, saying, "Those items should be supported by corporate budget," a director responded, "If we spend the corporate budget, the amount is included in the labor cost. In that case, we can hardly raise wages since labor cost is subject to the government’s budget guidelines."

The Ministry of Planning and Budget also criticized the same issue late last year. At the 13th meeting of board of directors in November 2007, a director said, "An official of the Planning and Budget Ministry sent some documents criticizing the KSD was planning to spend too much money on benefits this year. In other state-owned organizations, the amount of relevant fund slightly exceeded 9 million won per employee. But at the KSD, it amounts to 31 million won per employee."

After recently inspecting 31 state-owned agencies, including the KSD, the Board of Audit and Inspection announced, "We’ve yet to finalize the results of our inspection. But the KSD`s intra-corporate labor welfare fund certainly has lots of problems."

When asked about the total amount in the intra-corporate labor welfare fund and the purpose of the fund, the KSD responded, "It’s hard to say."

tesomiom@donga.com