Chairman Kwon Oh-joon of POSCO. (Photo:POSCO)

Chairman Kwon Oh-joon announced a five-point plan to overhaul the management of the giant steel maker POSCO, calling for cuts to half of its affiliates in the country and selling, liquidating or merging 30 percent of its non-core overseas operating units until 2017.

He also said POSCO decided to temporarily suspend its $12 billion steel plant construction project in India, which has spent 10 years in delays.

”We decided to tentatively stop the project as we have not seen visible progress,” the chairman said. 

POSCO’s Indian project to build a factory with an annual production capacity of 12 million tons in Odisha’s Jagatsinghpur district has gone through 10 years of delays due to a backlash from residents, environmental concerns and other reasons.

The chairman announced a tight management plan at an IR session for the steel maker on Sept. 15 at the Korea Exchange, where the steel maker’s second quarter results were officially unveiled.

The chairman’s plan divided POSCO and its affiliates’ operations into four major sectors, with steel making the core, and others being materials, energy, infrastructure and trading. The 44 domestic affiliates will be cut to only 22 while the overseas affiliates totaling 181 will be reduced to 117. POSCO’s first half operating profit amounted to 140 billion won, but the consolidated financial statement showed that the group suffered a loss of 150 billion won. The situation must be turned around, Kwon said.  

The chairman’s management plan includes a provision for holding the initiators of a project responsible for its failure. Their names will be clearly shown on the projects they initiated. The chairman initiated a plan to dismiss 25 officers and staff responsible for the failure of the steel maker’s investment projects.

The CEO also took measures to stop the appointment of POSCO executives to head the group’s affiliates as CEOs by restricting them to work only in the steel making sector and the marketing sector of steel products. They’re effectively barred from leading a company in the  construction and trading sectors.

He also changed regulations for POSCO’s overseas units, allowing them to hire foreigners at important positions in their operations. The move is designed to remove the “true blood” personnel system, which gave priority to POSCO personnel who rose through the ranks of the company. The policy had basically barred foreigners from attaining key positions at the company. 

The chairman also initiated the “Three Major 100 Percent System,” whereby any requests for favors from political areas and “the old boys” on personnel matters, and the dealings with POSCO and its affiliates, should be reported immediately and make the list public. The move is intended to introduce transparency. 

Kwon also adopted the “One Strike-You’re Out-System,” whereby any officer or staff who committed fraud, accepted bribes, committed sexual harassment, or given false information will be dismissed from the company.

Personnel from outside the company can only be hired for positions lower than the CEO, Kwon said, as he was announcing his plan for management reform at POSCO and its affiliates.

The chairman also said he will upgrade the company’s overall business portfolio to improve its competitiveness in the steel industry. One of the key steps was shutting down uncompetitive affiliates and developing more high-end technology. According to the second quarter performance that was also announced on Wednesday, the company had 15.18 trillion won in revenue, down 9.1 percent from a year earlier, and 686 billion won in operating profit, down 18.2 percent from a year ago. 

The company said it will try to increase premium steel products from last year’s 1.3 million tons to 2.5 million tons by 2017 and increase car steel sheet sales from last year’s 8.3 million tons to 9.5 million tons by 2017.