GM Korea approved a plan to turn its R&D divisions into a new corporation at a shareholders meeting Friday.
The plan was approved, reportedly in the absence of a proxy representing the bank -- the company’s second-largest shareholder -- because of a blockade by members of the GM Korea union that made it impossible to enter the venue.
The bank said it will file a lawsuit seeking to invalidate the approval of the plan. KDB says it has the right to veto decisions having to do with withdrawal from South Korea.
But whether its veto powers extend to the splitting off of the company’s R&D divisions is subject to dispute. The deal to revive GM Korea does not specifically identify this situation as one where the KDB has a veto.
Even if KDB sues, considering the year or two that it would take for a court to hand down its ruling, litigation to invalidate the establishment of a new corporation after it is established is hardly worth undertaking.
GM Korea takes the position that the plan is not subject to a veto. It says the separate R&D corporation will develop new cars in accordance with the global strategy of GM in the US. GM Korea argues that establishing a new R&D entity will lead to greater efficiency because R&D centers have to coordinate their efforts closely with the US headquarters.
The GM Korea union is threatening to go on strike, condemning the plan as a step toward the restructuring of production jobs and an eventual pullout from Korea.
GM has already withdrawn from Australia, Indonesia and Thailand, citing poor performance there. It closed a plant in Gunsan, North Jeolla Province, in May.
But the current plan to establish a separate R&D corporation seems to have little to do with any plans on GM’s part to withdraw from Korea. The plan is also unlikely to lead to a plant shutdown.
GM Korea says it has no reason to pull out of Korea. In May, when GM secured the investment pledge from KDB, it promised to maintain its Korean plants for at least 10 years.
If the union’s concerns are substantiated, however, KDB will have to be held responsible.
The state-owned bank agreed to invest 800 billion won ($706 million) in public funds in GM Korea, mediated by the Ministry of Finance and Economy. Public funds are taxpayers’ money.
Nevertheless, the bank was actually excluded from this important decision. The issue of establishing a separate corporation was not on the table when GM and the KDB negotiated further investment in May. This raises concerns that the government and the bank could again be caught off guard if GM Korea comes out with any more yet-undisclosed plans.
And yet the thought of giving the automaker a good scolding seems wrong. From the perspective of global strategy and management efficiency, the move may be regarded as a normal management decision.
But it’s important for all interested parties to have confidence in management. Well-intentioned as GM Korea may be, it cannot achieve its intended aims without the trust of its stakeholders within and without.
Legal wrangling and a general strike would undercut the plan. That is why GM Korea must avoid pushing ahead with it unilaterally, but should try its best to resolve the issue through close consultations with the union and the KDB.
The carmaker must listen to them, and it must also make efforts to dispel suspicions about its motives.
The KDB says there was little explanation of the plan before the shareholders’ meeting. This cannot but stir suspicion about GM’s intentions in setting up a new corporation.
The bank, for its part, should review whether it has been negligent in overseeing the company as a shareholder with a 17 percent stake.
The bank and GM Korea need to consider dialogue to quell concerns about withdrawal or additional restructuring. A new binding agreement that can cover a range of issues is worth consideration.
GM Korea has a long way to go to revive its business operations. These looming shareholder and labor conflicts only make matters worse. It is pitiful that the automaker has begun to squeak just about five months after making a fresh start.
The automaker is expected to post a record loss of 1 trillion won this year. It is not desirable to fan internal conflicts. Now is the time to devote all its energy to getting back on its feet.
If it loses market confidence due to conflicts within, the path to normalization will get longer.