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Lim Han-taek (far left), head of the GM Korea branch of the Korea Metal Workers’ Union, testifies during a National Assembly parliamentary audit concerning the corporate spinoff of GM Korea’s R&D division. To Lim’s left is GM Korea Vice President Choi Jong. Sitting on the far right is KDB chairman Lee Dong-gull. (Kang Chang-kwang, staff photographer)
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KDB reveals plan to exercise veto powers against separate R&D corporation
The parliamentary audits have heated up again amid speculations that GM is planning to pull out of South Korea. The whispers have re-emerged after majority shareholder GM approved a motion to split GM Korea into separate R&D and production corporations in a shareholders’ ad hoc general meeting that excluded the second-largest shareholder, Korea Development Bank (KDB), which opposes the plan. The National Assembly lambasted both the KDB for its impotence and GM for its one-sided approach in the renewed troubles five months after a management normalization agreement involving an infusion of over US$705 million in taxpayer money. The two biggest shareholders have been locked in a tense battle over key issues. Appearing at a parliamentary audit by the National Assembly National Policy Committee at the Industrial Bank of Korea offices in Seoul’s Jung (Central) district on Oct. 22, KDB chairman Lee Dong-gull said the bank “views [the plan to establish separate corporations] as a case for exercising veto powers.” “We plan to contest it in a lawsuit on the merits, and we’re also considering applying for an injunction, since it could result in an irreversible situation if the corporation split goes ahead,” he said. Speculation about GM’s plan to withdraw was reawakened after GM Korea announced the approval of the split on Oct. 19 following a shareholders’ meeting held by chairman Kaher Kazem, which KDB representatives were physically blocked from attending. Appearing as a witness at the audit, GM Korea Vice President Choi Jong disputed KDB’s claims that the split was subject to veto powers, describing it instead as part of the management normalization effort. “Our understanding is that this is not subject to a veto decision. Apparently, it was concluded [by the court that rejected KDB’s application for an injunction to bar the shareholder meeting where the split was approved] that the corporation split itself did not compromise shareholder value,” Choi said. During the audit proceedings that day, KDB came under fire from lawmakers who accused it of “shirking” in its response to the split. In addition to mentioning the strong likelihood that its veto powers would not be recognized even in a lawsuit on the merits – based on the conclusions of the court that dismissed KDB’s injunction application – many lawmakers also noted that the bank had failed to respond even after GM hinted at plans for the corporation split toward the end of the management normalization talks in May. Many questions were raised about whether KDB plans to go ahead as scheduled with delivering the remaining US$375 million of the US$750 million it agreed to provide to GM Korea. In his response, Lee said, “We think it would be better [to provide the funds], but if there is state-level opposition, we will abide by the state’s decision, and the contract will be void [if the payment is not made].” His reply showed the awkward position KDB finds itself in: worrying about the contract’s cancelation amid fierce criticisms from the South Korean government and public, which accuse it of providing GM with taxpayer money while being roped into its restructuring strategy. Audit reveals KDB’s limited authority and GM’s opaque management Details from the parliamentary audit also provided stark evidence of just how limited KDB’s authority is as second-largest shareholder – and how opaque GM has been with its management practices. Despite making no fewer than nine requests for data after the corporation split was made official, KDB said it had not yet received any proper response. GM countered that it had shared the relevant information by way of KDB-recommended directs at four board meetings. In addition to the questions over whether KDB will retain its veto powers, director recommendation rights, and other management checks in the event of a split, prospects are also uncertain for a cost sharing agreement (CSA) on ownership and the responsibility for costs in connection with R&D technology – a matter with direct bearing on GM Korea’s independent survival. On the question of whether direct recommendation and veto rights would be retained, Lee Dong-gull said, “I believe they would have to be passed on to both [entities created after the split],” but added that “nothing has been decided yet.” Finalizing the move would require a change to the basic contract signed among the shareholders, but negotiations have yet to take place due to the large differences surrounding the corporation split. The CSA that provides permanent free usage rights and royalties for jointly developed technology to GM – which pays an annual share of 600 billion won (US$529 million) in R&D costs – also expires at the end of this year, raising the question of which corporation its rights and responsibilities will revert to going ahead. “The [agreement’s] expiration date is at the end of this year, and my understanding is that GM Korea and GM are holding active discussions on an alternative agreement,” Choi said. Following the GM Korea union’s decision to hold a strike and request dispute mediation in connection with the corporation split, the National Labor Relations Commission put the brakes on a strike for the time being by ruling to issue administrative guidance calling for additional negotiations. By Jung Se-ra, staff reporter Please direct comments or questions to [english@hani.co.kr]
