Labor Director System Introduction Imminent... Financial Sector 'On Edge'

Passage of Public Institution Labor Director System in National Assembly Standing Committee
Interest in Expansion to Financial Sector as 'Union-Recommended Director System'

National Assembly / Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Kiho Sung] The bill to introduce the labor director system, which allows worker representatives to participate in the boards of public institutions, has passed the National Assembly's Planning and Finance Committee, increasing the likelihood of clearing the plenary session hurdle. The financial sector is closely monitoring the passage of the related bill. Discussions on introducing the labor union-recommended director system, a preliminary stage of the labor director system, are already underway mainly at policy banks, and if the bill passes and is subsequently introduced in private companies, the financial sector is expected to be the first target.

According to political circles on the 9th, the National Assembly's Planning and Finance Committee held a plenary meeting on the 5th and passed the amendment to the Act on the Management of Public Institutions (Public Institutions Act). The passed Public Institutions Act includes provisions to have the labor union recommend a member among the standing directors of public institutions. This bill requires appointing one non-standing director recommended or consented to by worker representatives on the board to ensure management transparency of public enterprises and quasi-governmental agencies.

The qualifications for a labor director are employees who have worked for more than three years, with a term of two years, renewable annually. The implementation period is six months after the promulgation date. The bill is expected to be approved at the plenary session of the National Assembly on the 11th after passing through the Legislation and Judiciary Committee.

The Public Institutions Act has gained momentum as candidates from both ruling and opposition parties expressed support ahead of this year's presidential election. Lee Jae-myung, a member of the Democratic Party of Korea, promised to handle the labor director system during a visit to the Federation of Korean Trade Unions last November. The People Power Party, which had previously opposed the system, saw a turnaround when presidential candidate Yoon Seok-youl visited the Korean Confederation of Trade Unions in December and expressed support for introducing the labor director system in the public sector. At that time, Yoon reportedly explained to the Korean Confederation of Trade Unions that the People Power Party would positively accept the introduction of the labor director system in the public sector at the party level.

If the bill passes the plenary session, labor directors will be appointed in quasi-governmental institutions such as the Korea Asset Management Corporation, the Korea Deposit Insurance Corporation, the Korea Housing Finance Corporation, the Korea Credit Guarantee Fund, and the Korea Inclusive Finance Agency. These institutions plan to take follow-up measures once detailed plans are finalized after the amendment passes. Some institutions are preparing for the amendment by listening to union opinions and monitoring cases or trends of other institutions that have first introduced the labor union-recommended director system.

The Korea Development Bank, the Export-Import Bank of Korea, the Korea Securities Depository, and the Korea Investment Corporation fall under other public institutions and are excluded from the labor director system under the current Public Institutions Act. However, the introduction of the labor director system in public enterprises may accelerate discussions on adopting the labor union-recommended director system in other public institutions as well. The labor union-recommended director system allows experts recommended by labor unions to participate as outside directors on the board and is considered a preliminary stage before the labor director system, where worker representatives enter the board with speaking and voting rights. In September last year, the Export-Import Bank appointed the first outside director recommended by a labor union in the financial sector. Although labor unions recommended outside directors at Industrial Bank of Korea and Korea Asset Management Corporation last year, these recommendations did not lead to actual appointments.

If labor directors or labor union-recommended directors appear in financial public enterprises and policy banks, the system could spread to private financial companies. The KB Financial Group labor union has advocated for the labor union-recommended director system annually since 2017. Recently privatized Woori Financial Group may also push for this system since its employee stock ownership association is the largest shareholder.

The management side cannot hide its concerns, as labor-management conflicts could extend to the board level. A financial sector official said, "There are clear advantages to the labor director and labor union-recommended director systems," but added, "However, since they could hinder swift decision-making, careful discussion is essential."

The business community is also anxious. There are concerns that if the labor director system is introduced in the public sector, pressure to adopt it in private companies will increase. Sohn Kyung-shik, chairman of the Korea Employers Federation, cited the full application of the Labor Standards Act to workplaces with fewer than five employees, currently under discussion in the political arena, along with the introduction of the labor director system in the public sector, as sources of instability in the corporate environment in 2022 in his New Year's address.

He urged, "The new year urgently requires policies to enhance national competitiveness and revive economic dynamism," adding, "I sincerely hope presidential candidates focus on preparing policy pledges that create an environment where free economic activities and entrepreneurship are respected."

This content was produced with the assistance of AI translation services.