Independent operation of pension fund key to success
The National Pension Service (NPS) has decided to introduce a stewardship code to actively exercise its rights as shareholder of companies in which it invests. The decision is aimed at better protecting interests of pension subscribers.
Despite the adoption of the code, the NPS will not be allowed, in principle, to participate in decision-making processes of companies. But it will be allowed to do so in a restrictive way under certain conditions. This will pave the way for the state pension fund operator to play a more active role in improving shareholder value and transparency in corporate governance.
The decision represents a compromise to ease concerns among companies that the stewardship code adoption might allow the NPS to interfere in corporate activities. Some CEOs and managers are still concerned that the government might mobilize the state pension fund operator to tame businesses.
A case in point was a 2015 merger between two Samsung affiliates -- Samsung C&T and Cheil Industries. The NPS voted for the merger allegedly due to pressure from the Park Geun-hye administration.
Then-President Park allegedly forced Samsung Group to hand over huge funds to her confidant Choi Soon-sil in return for the NPS vote for the merger. The action reportedly caused losses of 300 billion won ($267 million) to the group while facilitating the transfer of management rights to Samsung Electronics Vice Chairman Lee Jae-yong from his father Chairman Lee Kun-hee.
We hope the stewardship code will prevent the NPS from playing the role of rubber-stamping any corporate decisions without paying heed to shareholder's rights or protecting the interests of pension subscribers.
The stewardship code refers to a set of guidelines that encourage major shareholders to push for better corporate governance and higher dividends from companies they invest in. President Moon Jae-in pledged to put the code in place during last year's presidential campaign.
But the introduction of the code does not automatically mean the NPS can serve as a credible "steward" to better manage the pension fund. First the NPS should be allowed to enjoy independence from the government and political power.
If the government tries to appoint the President's close aide as NPS chief, it would undermine the independent operation of the world's third-largest pension fund estimated at 636 trillion won ($567 billion). So, it is imperative to ensure transparent management of the fund by guaranteeing the autonomy of the NPS.
The ultimate goal of the fund is to maximize its profit through stable management of subscribers' money on a long-term basis. We hope the stewardship code will contribute to this goal as well as improving corporate profitability by promoting corporate transparency and accountability.
The National Pension Service (NPS) has decided to introduce a stewardship code to actively exercise its rights as shareholder of companies in which it invests. The decision is aimed at better protecting interests of pension subscribers.
Despite the adoption of the code, the NPS will not be allowed, in principle, to participate in decision-making processes of companies. But it will be allowed to do so in a restrictive way under certain conditions. This will pave the way for the state pension fund operator to play a more active role in improving shareholder value and transparency in corporate governance.
The decision represents a compromise to ease concerns among companies that the stewardship code adoption might allow the NPS to interfere in corporate activities. Some CEOs and managers are still concerned that the government might mobilize the state pension fund operator to tame businesses.
A case in point was a 2015 merger between two Samsung affiliates -- Samsung C&T and Cheil Industries. The NPS voted for the merger allegedly due to pressure from the Park Geun-hye administration.
Then-President Park allegedly forced Samsung Group to hand over huge funds to her confidant Choi Soon-sil in return for the NPS vote for the merger. The action reportedly caused losses of 300 billion won ($267 million) to the group while facilitating the transfer of management rights to Samsung Electronics Vice Chairman Lee Jae-yong from his father Chairman Lee Kun-hee.
We hope the stewardship code will prevent the NPS from playing the role of rubber-stamping any corporate decisions without paying heed to shareholder's rights or protecting the interests of pension subscribers.
The stewardship code refers to a set of guidelines that encourage major shareholders to push for better corporate governance and higher dividends from companies they invest in. President Moon Jae-in pledged to put the code in place during last year's presidential campaign.
But the introduction of the code does not automatically mean the NPS can serve as a credible "steward" to better manage the pension fund. First the NPS should be allowed to enjoy independence from the government and political power.
If the government tries to appoint the President's close aide as NPS chief, it would undermine the independent operation of the world's third-largest pension fund estimated at 636 trillion won ($567 billion). So, it is imperative to ensure transparent management of the fund by guaranteeing the autonomy of the NPS.
The ultimate goal of the fund is to maximize its profit through stable management of subscribers' money on a long-term basis. We hope the stewardship code will contribute to this goal as well as improving corporate profitability by promoting corporate transparency and accountability.
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