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Conglomerates fear NPS abusing right to file lawsuits
By Lee Min-hyung
Korea's state pension fund, one of the largest in the world with around 918 trillion won under management, plans to strengthen its ability to file lawsuits against corporate management officials and boards of directors in order to exercise stronger rights to intervene in the management activities of major listed firms here.
The move, however, has been making businesses feel increasingly uncomfortable.
The National Pension Service (NPS) plans to do this by giving its external committee ― comprised of officials from labor and civic groups ― the authority to file shareholder derivative suits against local companies. The NPS plans to discuss shifting this authority to the organization from its fund management committee, at an upcoming meeting next month.
The plan has drawn strong backlash from businesses here, with industry officials arguing the move will end up destabilizing the economy and weakening the autonomy of companies.
There are concerns that the labor-backed committee will file a litany of lawsuits armed with its enhanced power, which experts argue could undermine day-to-day operations at the country's biggest conglomerates.
"One of the biggest fears is that the committee will file a huge number of lawsuits against companies by acting in accordance with public opinion," Sejong University professor Kim Dae-jong said.
The key reason behind the establishment of the NPS is for the welfare of the public by maximizing the profitability of its fund.
"But the latest move by the NPS goes against that purpose, and is feared to suffocate local companies," he said.
The NPS is not an independent organization and is still swayed by government pressure, which is its key difference with major overseas counterparts, according to the expert.
"Pension funds from developed countries have independent management, but this is not the case with the NPS whose leader is appointed by the government, so it is sensitive to public opinion when making decisions," he said.
The NPS is an affiliated organization under the Ministry of Health and Welfare, and Kim says the government's intervention is way too excessive.
The committee consists of nine officials, four of which will come from labor and civic groups, if the move is confirmed at the upcoming meeting.
Officials at major conglomerates say there is a strong chance that more companies will end up mired in lawsuits, as the NPS' external committee does not have to care about the profitability of its fund.
"The NPS' fund management committee has to think twice before deciding whether to file lawsuits against firms, as this may result in a fall in their stock prices, which will in turn weaken the profitability of the pension fund," an industry source said. "But this will not be the case if the labor-powered committee gains power over the agenda, as it would not have to care about the profitability of its fund."
In response, the health ministry held an emergency press conference with the leaders of the country's business and trade circles on Jan. 20.
They voiced strong opposition by issuing a joint statement.
"The committee does not take responsibility for the fund's management, so regardless of its profitability, the organization is highly likely to take legal actions in line with public sentiment and its political and social interests," they said in the statement.
The fund management committee, which is sensitive to profitability, should therefore decide whether to file lawsuits after calculating how much the action will affect its returns, they said.
The ministry plans to decide by the end of February whether to allow the NPS to push ahead with the move.
Nevertheless, the NPS has been expanding its influence over local companies.
According to data from the Korea Enterprises Federation, the number of times the NPS has exercised its voting rights has been on a gradual rise in recent years.
The figure stood below 3,000 before 2019, but increased each year afterwards. The NPS took part in a total of 747 shareholders meetings between January and October last year, and exercised its voting rights on 3,319 agenda items.
Another industry official said the NPS should set up an internal system that prevents the committee from abusing its right to file lawsuits.
"Companies will remain vulnerable without the establishment of such preventive measures," the official said.
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