Prime Minister Han Seong-sook holds a press conference Thursday at Government Complex Seoul in Jongno-gu, Seoul, to announce the relocation of administrative and public institutions and a reform of public institution functions. [Yonhap]
Prime Minister Han Seong-sook holds a press conference Thursday at Government Complex Seoul in Jongno-gu, Seoul, to announce the relocation of administrative and public institutions and a reform of public institution functions. [Yonhap]

Will employees of Home&Shopping, Hanyuwon become public-enterprise workers? Pay structures, shareholders and workplaces all differ

Home&Shopping chief faces loss of post just 5 months in; Hanyuwon CEO search presses on

387 employees at facilities subsidiaries to be merged; SME research institute to be transferred — agency heads' fates hinge on restructuring method

"We were caught off guard by the sudden announcement and are still in a daze. We have not received any detailed guidelines yet. There are many specifics that still need to be decided."

That was the reaction of an official at a public institution under the Ministry of SMEs and Startups after the government unveiled its "Plan to Reform Public Institution Functions" on Thursday. Narrowed to matters involving the ministry, the plan centers on mergers and relocations. Most notably, Korea SME and Venture Business Distribution Agency — known as Hanyuwon — and Home&Shopping will be combined into a single new entity to be called the Small and Medium Enterprise Marketing Promotion Corporation.

In addition, the facilities-management subsidiaries of public institutions that own their own buildings will be consolidated into one. Kibo's Kibo Mate, Korea SMEs and Startups Agency's Jungingong Partners and Hanyuwon's Hanyuwon Partners will be merged into a company tentatively named SME Venture Management Co.

Lee So-young, nominee for minister of SMEs and Startups, speaks to reporters Friday after a meeting at the Korea Federation of SMEs in Yeouido, Seoul. [Yonhap]
Lee So-young, nominee for minister of SMEs and Startups, speaks to reporters Friday after a meeting at the Korea Federation of SMEs in Yeouido, Seoul. [Yonhap]

Beyond those moves, the Korea Business Incubation Association, which has 19 staff, will be absorbed into the Korea Institute of Startup and Entrepreneurship Development, while the Comprehensive Support Center for Disabled Entrepreneurs will be transferred to the Korea Employment Agency for Persons with Disabilities under the Ministry of Employment and Labor. The Korea Research Institute for SMEs and Startups will be moved under the Economic, Humanities and Social Research Council of the Prime Minister's Office. Three other bodies — the Korea SME Certification Agency, the Korea Industry-Academia-Research Association and the Women Entrepreneurs Support Center — will be removed from the list of managed public institutions. Once the restructuring is complete, the number of agencies under the Ministry of SMEs and Startups will shrink by eight.

The first hurdle is the remaining terms of agency heads and executives. While the government pledged to guarantee employment for rank-and-file staff at institutions subject to merger or dissolution, executives were explicitly excluded from that protection. The most immediate concern involves Home&Shopping President Lee Il-yong, who was appointed in March and began a three-year term. If the new integrated corporation is launched, his tenure will in effect be cut short.

At Hanyuwon, a search for a new chief executive is already under way, and that process could be suspended if the plan to establish the new corporation moves forward. However, a Hanyuwon official said the CEO selection would continue as planned. "It has been decided that the executive search will proceed as before. The executive recommendation committee is an independent body, and the selection process will go ahead as originally scheduled," the official said. If a new Hanyuwon chief is appointed under the current process, how to handle that person's term will immediately become a problem.

A relevant precedent for how to treat executive terms when institutions are dissolved and merged is the 2009 creation of Korea Land and Housing Corporation — known as LH — from the merger of Korea National Housing Corporation and Korea Land Corporation. The supplementary provisions of the Korea Land and Housing Corporation Act stated that "the terms of executives of Korea National Housing Corporation and Korea Land Corporation shall be deemed to have ended simultaneously with the establishment of the corporation." Employees were guaranteed job continuity, but executives were not. Whether additional litigation over term guarantees arises will depend on the supplementary provisions of the relevant legislation.

The second hurdle is what happens to the status and compensation of employees once the two agencies become a single corporation. Both Home&Shopping and Hanyuwon are currently classified as miscellaneous public institutions. The government has proposed naming the merged entity the Small and Medium Enterprise Marketing Promotion Corporation. Once combined, it would meet the threshold for designation as a public enterprise or quasi-governmental institution — a headcount of 300 or more and total revenue of at least 20 billion won — and could be reclassified as a quasi-market-type public enterprise.

The third hurdle involves shareholding and organizational structure. Hanyuwon holds a 50 percent stake in Home&Shopping, with NH Agri Business Holdings holding 45 percent and the National Federation of Fisheries Cooperatives holding 5 percent. Korea SMEs and Startups Agency owns 100 percent of Hanyuwon. Before the two institutions can be folded into a single corporation, the government must decide how to handle the existing shareholders' stakes.

Stakes that Hanyuwon holds in other invested companies also come into play. Hanyuwon owns roughly 15 percent of Home&Shopping. If Hanyuwon ceases to exist or changes its legal character during the integration, it will need to be determined whether the newly established corporation inherits that stake or whether another institution takes it over. Office space is another question: Hanyuwon's headquarters is in Mok-dong, Yangcheon-gu, while Home&Shopping is based in Sangam-dong, Mapo-gu. The management-support functions on both sides — human resources, finance, audit and public relations — may also need to be consolidated into one.

The fourth hurdle is that the restructuring method differs from institution to institution. Three facilities-management subsidiaries currently designated as deferred public institutions — Kibo Mate with 80 employees, Jungingong Partners with 205 and Hanyuwon Partners with 102 — are to be horizontally merged into the tentatively named SME Venture Management Co., for a combined headcount of 387. Although facilities management, disaster prevention, electrical, mechanical and cleaning operations will all be placed under one legal entity, the employees will remain scattered across their respective parent institutions and worksites. That means integrating pay and personnel systems and redesigning contracts with each parent institution will all have to follow.

There are further concerns as well. Transferring the Korea Research Institute for SMEs and Startups to the Prime Minister's Office-affiliated research council would eliminate the ministry's in-house research capacity, raising worries that policy support for small businesses and self-employed operators could be weakened. Whether the government will continue to fund the three institutions that no longer meet the criteria for public-institution designation is also among the details that must be settled as part of the broader public institution reform plan.


hong@heraldcorp.com