NPS likely to oppose reappointment of Hyosung, Daelim chairman in March

By Kim Hyun-bin

Recent revisions of financial laws give more power to shareholders in the corporate decision making process, being able to request structural reforms and have a say in nominating and removing executives from the corporate board.

The move also empowers the government's involvement in corporate affairs as the National Pension Service (NPS), the world's third largest pension fund, holds a substantial amount of shares in local conglomerates and businesses.

In upcoming shareholders meetings slated for March, the NPS is expected to wield influence on over 300 companies where it holds over 5 percent or more shares.

For example, under the new revision, if Samsung Electronics Vice Chairman Lee Jae-yong is found guilty of embezzlement and malpractice, the NPS, as a key shareholder of the company, will be allowed to make a request for his resignation.

There are worries among the financial world that the government could get too involved in company affairs as the NPS has a history of using its shareholder rights to block conglomerate CEOs from taking their post.

In March, the late Hanjin Group Chairman Cho Yang-ho stepped down from his position as president of affiliate Korean Air due to strong opposition from the NPS.

NPS also voiced strong opposition against the reappointment of SK Group Chairman Chey Tae-won, who was embroiled in bribery accusations at the time.

All eyes are on if the NPS will use its shareholder influence against Hyosung, Daelim as the companies' chairmen were involved in embezzlement and malpractice.

Hyosung Group Chairman Cho Hyun-joon

The two chairmen are subject for reappointment during at their respective companies' shareholders meetings scheduled for March.

In September, Hyosung Group Chairman Cho Hyun-joon was sentenced to two years in prison for incurring 17.9 billion won ($15 million) in losses for Galaxia Electronics Co., a Hyosung affiliate, by having the firm repurchase its own shares at a higher price in July 2013.

However the company is optimistic that it will be able to re-elect Chairman Cho with or without the NPS's support.

“Hyosung is the major shareholder of the company with 54.72 percent of the shares, so the group believes its chairman will be re-elected,” an industry official said. “The NPS invests in companies to make a profit and Hyosung exceeded over 1 trillion won in profit last year, which the group believes will somewhat satisfy the NPS.”

Daelim Group Chairman Lee Hae-wook is under trial for making illicit gains through its “GLAD” trademark usage.

Daelim Group Chairman Lee Hae-wook

Hyosung and Daelim are scheduled to hold their general shareholders meeting on March 20 and March 27, respectively.

The NPS holds around 10 percent of Hyosung shares and 12 percent of Daelim.

“The board of directors meeting is scheduled for Thursday, where issues that will be put up for vote during the shareholders meeting will be selected,” an official from Daelim said. “The NPS has not officially announced it will reject the reappointment of Chairman Lee so we have no countermeasures at this point.”

Industry experts believe, NPS will exercise their rights to oppose reappointment of the two chairmen for decreasing share values.

The NPS could take it a step further to request structural revisions as well as urge changes to the company's articles of association.

The business circle has expressed concerns the government could expand its influence over company management which could undermine the independence of corporations.

“There are possibilities the shareholder activities guidelines could be used to interfere in corporate management,” an official from a conglomerate said. “The government should minimize activities that affects the autonomous business operations of corporations.”

Under the new revisions, when it comes to changing a company's articles of association regarding dividend payouts or executive salaries, institutional investors with a 5 percent or greater stake will no longer be required to disclose their actions within five days but instead by the following month.