NPS seeks greater say at companies amid growing shareholder activism

In a bid to uphold shareholders’ rights, South Korea’s state pension fund is seeking a greater say in companies in which it holds considerable stake, drawing market attention toward decisions it would rarely have made before.

The National Pension Service said Wednesday that it had decided to vote against the appointments of some board members at the nation’s largest airline, Korean Air, at the airline’s shareholders meeting scheduled for Friday. They include Cho Won-tae, the chairman of logistics conglomerate Hanjin Group.

Market watchers forecast that the NPS’ move to influence companies’ management decisions will continue with growing calls for representing the public’s interests.

“The state-run NPS seems to oppose to the appointment of Chairman Cho as Korean Air director as the plan will not likely benefit the public -- the main shareholders of the fund,” said Park Ju-kun, CEO of market data tracker CEO Score, mentioning growing market concerns over the planned acquisition of money-losing Asiana Airlines.

“The NPS has been exercising its voting rights more actively than before as it has now a larger presence in companies and in the overall stock market,” he added.

Hwang Se-woon, a research fellow at local think tank the Korea Capital Market Institute, agreed with Park, predicting, “The NPS will continue trying to exert a greater influence on both individual companies and the overall market to better represent the interests of the public.”

The fund operator, which holds an 8.9 percent stake in Korean Air, is the airline’s second-largest stakeholder. The largest is Hanjin KAL, the holding company of Hanjin Group.

At the Tuesday meeting, the members of a trust management committee under the NPS made the decision to naysay the appointments of new directors, saying some of the proposals could undermine the rights of Korean Air shareholders.

“Some of the proposed appointments will probably hurt shareholders’ rights as the new board members, recommended by the firm, could approve the planned acquisition of Asiana Airlines without conducting due diligence in a strict manner and accept contract terms unfavorable to Korean Air shareholders,” the committee explained.

The NPS committee also decided to cast votes against other proposals, including the appointments of two inspection committee members, including the sitting outside director Kim Dong-jae.

At Hanjin Group’s shareholders meeting, slated to take place Thursday, the NPS will vote for most of the proposals but will vote against the appointments of two new board members, the fund operator said.

On Friday, the NPS is also expected to oppose the planned appointments of four new outside directors at financial behemoth Woori Financial Group. The fund operator said the new directors recommended by the financial conglomerate had been negligent in their duties to prevent the improper selling of derivatives-linked products.

The state-run fund, on the other hand, is likely to vote for proposals by Shinhan Financial Group and KB Financial Group to name new directors and inspection committee members. Although the two financial conglomerates have been accused of misselling funds linked to the scandal-ridden Lime Asset Management, the NPS decided to side with the two as investigations by state regulators are still underway.

The NPS, the nation’s largest institutional investor with some 750 trillion won ($661 billion) in assets under its management, has increasingly sought to exercise its stewardship and shareholder rights against firms implicated in crimes, including embezzlement and breach of trust, since late last year.

By Kim Young-won (wone0102@heraldcorp.com)