🚨 Worker Directors System

Today Korean Social News for Beginners | 2025.08.16

0️⃣ Employee Participation in Corporate Board Decisions and Corporate Governance Reform

📌 Revised Commercial Act Creates Worker Rights Gap... Worker Directors System Discussion Spreads

💬 The revised Commercial Act that took effect on July 22 expanded directors' duty of loyalty from the company to shareholders. This change helps prevent harm to shareholder interests and fixes past legal limitations. However, it leaves a protection gap for workers and other unsecured creditors during bankruptcy. This has led to discussions about introducing a Worker Directors System, where employees can directly participate in or recommend representatives to company boards. The discussion goes beyond simply balancing shareholder-centered decision-making. It aims to treat workers as "actual shareholders" during bankruptcy risks and include them in business decisions.

💡 Summary

• The Worker Directors System allows workers to participate in company boards and have voting rights in business decisions.
• While the revised Commercial Act strengthened shareholder rights, worker protection gaps remain, leading to system introduction discussions.
• Public institutions started using this system in 2023, and expansion to private companies is being considered.

1️⃣ Definition

Worker Directors System means a system where workers participate in company board meetings and exercise speaking and voting rights in decision-making processes. Workers can become directors directly, or people recommended by worker representatives can be appointed as directors to reflect workers' voices in business management.

This is a system that moves away from traditional shareholder-centered corporate governance and allows workers to participate in business decisions. It recognizes workers not just as production factors but as key stakeholders in companies, aiming for more balanced business operations.

💡 Why is this important?

• It helps balance shareholder-centered corporate governance limitations for more balanced decision-making.
• It serves as a safety system to protect worker employment stability and rights.
• It improves business transparency and accountability, contributing to sustainable business operations.
• It promotes communication between management and workers and prevents conflicts.

2️⃣ Revised Commercial Act and Worker Rights Protection Gaps

📕 Main Content and Limitations of the Revised Commercial Act

• Directors' duty of loyalty targets were expanded. Key changes include:

  • Previously, directors only had loyalty duties to the "company," causing interpretation disputes.
  • The revised law clearly states directors' loyalty duty to "company and shareholders."
  • This allows direct responsibility when directors harm shareholder interests.
  • It especially prevents cases where major shareholders or management harm minority shareholders.

• Worker and creditor protection remains in blind spots. Main problems include:

  • Even in the revised law, workers and unsecured creditors are not included in loyalty duty targets.
  • In companies facing bankruptcy risks, workers face wage cuts and job insecurity but are excluded from decision-making.
  • Workers lack legal means to check management's unreasonable decisions that hurt the company.
  • Especially during restructuring, decisions based on worker sacrifices are often made unilaterally.

📕 Workers' Economic Interests and Protection Needs

• In bankruptcy risk situations, workers have positions similar to shareholders. Key realities include:

  • When companies struggle, workers agree to wage cuts or returns to help business recovery.
  • They hold significant claims against the company through severance pay and unpaid wages.
  • Unlike shareholders, they cannot easily sell shares and leave, having interests directly tied to company fate.
  • Company survival directly connects to workers' livelihoods, giving them interests as strong as shareholders.

• Current systems have limitations in protecting worker rights. Main problems include:

  • Even with labor unions, it's hard to prevent management's unilateral decisions beforehand.
  • Post-decision collective bargaining or strikes cannot reverse already-made decisions.
  • Worker opinions aren't reflected in major business decisions like M&A or restructuring.
  • Decision-making without transparent information disclosure causes worker harm.

💡 Main Gaps in Worker Rights Protection

1. Decision Exclusion: Lack of worker opinion reflection in business decisions directly affecting employment
2. Information Access Limits: Insufficient information about business conditions and future plans
3. Post-Response: Real rights protection is difficult through post-decision responses
4. Legal Protection Gaps: No direct remedy means as excluded from directors' loyalty duty targets
5. Business Participation Rights Absence: Lack of participation means like shareholder meeting rights or director appointment rights

3️⃣ Worker Directors System Introduction Plans and Expected Effects

✅ Domestic Public Institution Introduction Status and Results

• Worker Directors System became mandatory in public institutions from 2023. Main content includes:

  • Worker representatives participate in boards through Public Institution Management Law revisions.
  • Worker representatives are appointed as directors within one-third of total director numbers.
  • Workers can directly elect or labor unions can recommend people to become directors.
  • They exercise the same voting and speaking rights as regular directors and participate in business decisions.

• Early operation results show positive changes. Main effects include:

  • Increased communication between management and workers shows conflict prevention effects.
  • More careful decisions are made by reviewing business decisions from worker perspectives.
  • Transparent information disclosure and explanation responsibilities strengthen business transparency.
  • Worker opinions on employment stability and working condition improvements are directly reflected.

✅ International Cases and Private Company Expansion Plans

• Germany's co-determination system is a representative success case. Main features include:

  • The co-determination system implemented since the 1950s gives workers half of board seats.
  • In companies with over 2,000 employees, worker representatives take half of supervisory board seats.
  • It achieved long-term business stability and productivity improvement through labor-management cooperation.
  • It checks management's short-term profit pursuit and pursues sustainable growth.

• Gradual approaches are needed for Korean private company expansion. Main plans include:

  • Starting with large companies or listed companies and gradually expanding can be considered.
  • Custom system design considering industry characteristics is needed.
  • Worker director qualification requirements and education programs must be systematically prepared.
  • Burdens can be minimized through different applications based on company size and worker numbers.
  • Providing incentives for voluntary introduction rather than legal mandates can be considered.

4️⃣ Related Term Explanations

🔎 Directors' Duty of Loyalty

• Directors' duty of loyalty is the legal obligation to work faithfully for companies and shareholders.
  • Directors' duty of loyalty means directors must prioritize company and shareholder interests over their own and work faithfully. It's regulated in Commercial Act Article 382-3, clarified through 2022 revisions.
  • Main loyalty duty content includes: First, prioritizing company and shareholder interests in conflict situations. Second, not using company opportunities for personal gain. Third, not using company information for personal profit. Fourth, following non-competition obligations.
  • Before revision, it was regulated as loyalty duty "to the company," causing disputes about whether shareholders could directly claim damages. After revision, it clearly states loyalty duty "to company and shareholders," enabling direct shareholder rights relief. However, workers and creditors remain excluded from protection.

🔎 Corporate Governance

• Corporate governance refers to systems and procedures for controlling and operating companies.
  • Corporate governance means authority distribution and check systems among key decision-making entities like shareholders, boards, management, and auditors. It's the framework determining who controls companies, how decisions are made, and how responsibilities are taken.
  • Traditional governance is designed shareholder-centered. Shareholders elect directors in general meetings, boards supervise management, and auditors check operations. However, this structure may not sufficiently reflect voices of other stakeholders like workers, creditors, and communities.
  • The Worker Directors System supplements this shareholder-centered governance to directly reflect worker interests. Examples like Germany's co-determination system and Nordic worker director systems pursue balanced decision-making considering various stakeholders, not just shareholder profits.

🔎 Unsecured Creditors

• Unsecured creditors are creditors who lent money without collateral, having low repayment priority during company bankruptcy.
  • Unsecured creditors mean creditors who have claims against companies but without collateral or guarantees. Representatives include workers (wage claims), trading partners (sales claims), and financial institutions (credit loans). They have lower chances of repayment during company bankruptcy compared to secured creditors.
  • Workers especially have unique positions. First, they are creditors providing labor to companies and receiving wages. Second, when companies struggle, they sacrifice through wage cuts and employment adjustments. Third, unlike shareholders, they cannot easily settle relationships and leave, having interests closely tied to company fate.
  • In bankruptcy risk situations, unsecured creditors, especially workers, gain economic interests similar to shareholders. Company survival directly connects to their livelihoods, and they make significant sacrifices for company revival. In this context, arguments arise for treating workers as "actual shareholders" and including them in business decision-making.

5️⃣ Frequently Asked Questions (FAQ)

Q: Won't the Worker Directors System burden business management if introduced?

A: If properly designed, it actually improves business stability and efficiency.

• While concerns about the Worker Directors System are understandable, international cases show more positive effects. First, Germany operated the co-determination system for over 50 years while growing into a global manufacturing powerhouse. Long-term decision-making through labor-management cooperation contributed to business competitiveness. Second, worker director participation allows direct delivery of field voices to management, enabling more realistic and executable policies. Third, reflecting worker perspectives in business decision-making can prevent labor-management conflicts and promote smooth communication.
• Of course, there may be some difficulties during initial adaptation. However, these problems can be sufficiently solved through proper education and system design, making it a system beneficial to both labor and management long-term.

Q: What qualifications should worker directors have?

A: People with both worker representation and business participation abilities are suitable.

• Worker director qualification requirements may vary by system design, but generally consider these conditions. First, they should be company workers or people trusted by workers. Second, they need basic understanding of business management and finance. Third, they need communication abilities and representation to speak for worker groups. Fourth, they need integrity and expertise to faithfully perform legal duties and responsibilities as directors.
• Germany uses methods where labor unions recommend or workers directly elect, with separate education programs after appointment to acquire knowledge needed for director roles. Korea would also need to establish qualification requirements and education systems in similar ways.

Q: Should the Worker Directors System apply to small companies too?

A: Flexible application considering company size and industry characteristics is desirable.

• Applying the Worker Directors System differently by company size is realistic. First, starting with large companies or listed companies with big social influence is appropriate. These companies already have complex governance structures, so Worker Directors System introduction effects would be significant. Second, small companies have closer distances between management and workers with relatively smooth communication, so institutionalization may not be necessary. Third, industry characteristics should be considered. Labor-intensive industries like manufacturing may have big effects, but small service businesses may have limited effectiveness.
• Therefore, gradual introduction considering company size, worker numbers, and industries comprehensively is preferable rather than uniform mandates. Providing incentives for voluntary introduction rather than legal obligations can also be considered.

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