Chung Jin-suk, senior presidential secretary for political affairs, denies he did anything illegal when he was an outside director for Samhwa Savings Bank, which has recently slid into insolvency. He may not have breached the law but he may be criticized for negligence
“Never did I attend a conference on bank management or engage in lobbying (on behalf of the savings bank),” says Chung, who took 2 million won each month from the Seoul-based savings bank for three years and seven months. “My name was listed (as an outside director), but I had never been there (to the savings bank).”
The prosecutors’ office appears to believe that he engaged in no culpable activity, given its decision not to launch an inquiry into his case. Still, many questions are raised regarding his role as an outside director and the statute requiring listed corporations to hire outside directors.
The post of outside director was introduced in 1998 as a means of checking top managers and controlling shareholders who might be tempted to pursue their own interests at the expense of other shareholders. But the legislation has apparently failed to serve its purpose, as evidenced by the case involving Chung.
The outside director has the role of representing the interests of shareholders while remaining independent of management. He also needs to make contributions to the corporation by drawing on his expertise.
But Chung did none of these, if his remarks on what he did as an outside director are correct. He says he was listed as an outside director with the help of a friend when he lost in the parliamentary election in 2004. When he won a by-election the next year, he says he did not report his outside directorship to the National Assembly on advice from its secretariat. He says he received 2 million won each month in the name of transportation expenses.
Chung did not represent the interests of shareholders or make any contribution to the savings bank if, as he says, he had never set foot in the non-banking financial institution. Then why did he take the money?
The opposition Democratic Party says that he served as an outside director and sat on the standing committee on transportation and construction at the same time that the savings bank was making loans to construction companies. If true, he can hardly be excused for this ethical lapse.
Still, Chung may have good reason to regard himself in the wrong place at the wrong time. For many, if not all, the post of outside director is a sinecure that demands little responsibility, labor or active service.
The most coveted among them are high-paying outside directorships offered by banks and other financial institutions. Ministries, the prosecutors’ office, the Financial Supervisory Service, the National Tax Service and other influential government agencies reportedly lobby the financial institutions for their retiring senior officials.
As a popular saying goes, however, there’s no such thing as a free lunch. Outside directors are often used as lobbyists. Against this backdrop, Prime Minister Kim Hwang-sik recalls that, when he was chairman of the Board of Audit and Inspection last year, he was often “lobbied or requested by those serving the interests of savings banks to go easy on auditing them.”
The state watchdog reported its findings, including 2.6 trillion won in nonperforming loans to the presidential office a year ago. But it took no action until recently.
The prosecutor’s office should leave no stone unturned in looking into allegations of lobbying by insolvent savings banks. At the same time, the role of outside directors must be strengthened to ensure that top managers and controlling shareholders are held accountable.