Introduction of stewardship code

The Korea Times

The Korea Times

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Mon, December 4, 2023 | 19:36

Thoughts of the Times

Introduction of stewardship code

Posted : 2016-01-13 17:03

Updated : 2016-01-13 18:01

By Pae Ki-pyo

The draft for "Korea Stewardship Code" for the reinforcement of responsible investment based on active voting rights of institutional investors led by the Financial Services Commission has been prepared. But currently there are various controversies such as decision of the subject of performance-supervision, the possibility of mutual contradiction with the large-possession of stock and it being made public, the regulation prohibiting the use of non-disclosed information of the capital market law between policy institutions, the financial investment industry, and corporations.

Based on the monitoring experience of the Stewardship Code of the U.K. introduced in 2010 as the world's first, and is being executed successfully, I am convinced that the Stewardship Code will go beyond the financial investment industry and improve the competitiveness of all economic subjects, and benefit sustainable growth of the Korean economy.

Let's examine each economic subject. First, in the case of an institutional investor, responsible investment can be reinforced by enacting a voting-rights policy for investment companies and disclosing the execution results and the reasons. Going beyond the limits of existing investment methods, considering only the financial elements of an investment company, the non-financial elements are also evaluated and monitored so as to improve the investment stability based on responsible investment for sustainable growth and to secure the investment reliability for domestic and foreign clients. It can be an energizer for the stagnant domestic stock market. The author focuses on the fact that in Japan, where the Stewardship Code has successfully made a soft-landing, GPIF (Japan public pension) first actively adopted, and effectively drew up the participation of institutional investors.

Accordingly, the author believes that the National Pension should take the initiative in the execution of the Stewardship Code. In the case of the execution of the Stewardship Code, it is the main objective in evaluating an asset management company for the National Pension. In this way, active participation of institutional investors can be achieved. Especially, the difficulty in corporate analysis for the target of ensuring the voting-rights execution with which small/medium-sized investment agency with limited human resource size can be resolved through outsourcing for voting-right consulting agency, and this can contribute to the birth of Korea's new financial business.

Second, in case of corporations, the Stewardship Code can help them with sustainable growth. This is because the active monitoring and inspection of investment targets by institutional investors can lead to transparent and ethical management of companies centering on stockholders. Companies need funds for investments for sustainable growth, and for smooth supply of these funds, the corporation needs to appear attractive to the investors through measures such as improving governing structure, dividend policy, good manage. If the institutional investors discover an investment risk factor and request additional resources, this is an externally received signal on active necessity of risk management, and requires an active defense against such. The Stewardship Code is a risk management strategy where the company can inspect various management risks that can potentially occur.

Third, in the case of government, the Stewardship Code enables them to promote expansion of corporate investment and the vitalization of the capital market in the large frame of the macro-economy. This would bring a virtuous cycle to personal economic stabilization such as reducing unemployment. The Stewardship Code is not a legally-binding compulsory provision, and the government should encourage and manage it for the smooth execution as institutional investors determine their participation voluntarily. In the case of the UK, the actual executive power is improved through the semi-governmental organization of FRC (Financial Reporting Council). The Korean government should also select a supervising agency with authority and independence that will notify the government of its results.

I expect that the Stewardship Code will be successfully introduced in the new year and become a new resource of vitality for the Korean economy.

The writer is an economic analyst and certified public accountant. His email address is uscpa@daum.net.