Business circles concerned about NPS’ stronger shareholder activism

The National Pension Service’s growing interference in corporate management as it enforces stricter yardsticks on investments and recent revisions of commercial acts are raising the hackles of South Korean business circles.

On Thursday, a forum on “Improving governance structure for national pension independence” was co-hosted by five business associations -- Korea Economic Research Institute, Korea Enterprises Federation, Korea Listed Companies Association, Federation of Middle Market Enterprises of Korea and the Kosdaq Listed Companies Association.

“Now, it is not just overseas hedge funds, but NPS is also interfering in the management of Korean companies. The problem is that the firms have to endure these attacks without any defensive measures,” KERI President Kwon Tae-shin said in his opening address.

He noted that because the purpose of establishing the NPS was to guarantee the future income of people “we must express serious concern that the government is using the funds for other purposes.”

Last month, the Ministry of Justice announced amendments to the Commercial Law, Capital Markets Act and the National Pension Act to enhance the rights of shareholders and institutional investors, allowing them to assess the eligibility of directors and auditors. Also, In December, the NPS adopted stewardship code guidelines aimed at more active shareholder activism.

“The misconduct of some corporations can be punished through related laws. But the idea that the government will use the national pension fund to sanction companies does not serve its original purpose,” former Health and Welfare Minister Choi Kwang said.

Kwak Kwan-hoon, professor at Sunmoon University, questioned the governance issues of the NPS. He said the fund’s decision-making process can be politically influenced, claiming that some members of the NPS Trustee Responsibilities Committee lack expertise in investment decisions, operation or corporate management.

“To solve this problem, the NPS’ investment judgment and voting rights should be left to experts and the current committee should only manage and supervise the decision making by experts,” he said.

Choi Sung-hyun, head of policy division of Korea Listed Companies Association, said if the independence of fund management of the NPS is not secured, corporate management may be shaken by political motives. 

By Shin Ji-hye (shinjh@heraldcorp.com)