[Editorial] GM headquarters chiefly responsible for split, but KDB’s complacency also to blame

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)

The chief responsibility for the “dine and dash” accusations surrounding GM Korea reemerging five months after its management normalization plan was negotiated lies with the GM headquarters in the US. Its decision to hold an ad hoc general shareholders’ meeting on Oct. 19 and approve GM Korea’s separation into two corporate entities despite vocal objections from its union and second-largest shareholder Korea Development Bank (KDB) could be seen as a breach of the spirit of the normalization agreement reached in May.

The union accepted workforce restructuring measures and the closure of GM Korea’s Gunsan plant for the case of management normalization, while KDB agreed to provide US$750 million in public funds. These were conditional on GM not pulling out of South Korea within the next ten years. If the establishment of a separate R&D corporation is a measure for boosting competitiveness as GM claims, that’s all the more reason for it to have sincere dialogue with the union and sufficient discussions with KDB.

By unilaterally steamrolling through with the corporation split, it has fanned suspicions that it plans to sell off its production plant and leave South Korea with its R&D data.

But KDB is not free either from accusations that its complacent response allowed matters to escalate. When asked during an Oct. 22 parliamentary audit by the National Assembly National Policy Committee whether KDB had not seen the R&D corporation split coming, chairman Lee Dong-gull replied, “GM Korea did raise [the issue] toward the end on the last day of negotiations in late April, but we did not view it as an item for discussion and did not include it in the management normalization plan.”

In other words, KDB was aware of the split’s possibility beforehand but not did take action in response.

The agreement at the time gave KDB veto powers on 17 areas, including sales of more than 20 percent of GM Korea assets. This was meant as a safeguard against “dine and dash” tactics – but a corporation split was not mentioned in the areas subject to veto authority. Lee said that it was “realistically difficult to include specific bans in the contract for all potential areas that could correspond to management decisions.”

But the GM situation had caused a huge furor at the time. KDB should have closely scrutinized all the variables that could be anticipated and set up careful countermeasures. That is why many are now saying its own lackadaisical response is what led to it being blindsided. KDB is now saying it plans to pursue legal action, including a lawsuit to invalidate the results of the ad hob shareholders’ meeting – but it’s a case of too little, too late.

KDB views the likelihood of an actual dine and dash as slim, claiming that while the bank stands to lose US$750 million in public funds if GM pulls out of South Korea, GM would suffer losses of around US$3.5 billion. It’s true there isn’t yet any way of precisely gauging GM’s intentions with the corporation split. But we have to consider what kind of a business GM is. GM is notorious for its past dine and dash tactics in several countries, including Australia.

KDB and the South Korean government will need to devise special measures to ensure that GM sticks to its promise of keeping its business in South Korea over the next decade. They need to save those jobs and see to it that the taxpayers’ money is not being spent in vain. They also need to stop only locking the barn door after the horses have already bolted.

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