Will LG Chem CEO overcome NPS opposition?

By Park Jae-hyuk

After the National Pension Service (NPS) decided to vote against LG Chem CEO and Vice Chairman Shin Hak-cheol's proposed reappointment as an inside director, attention is on how minority shareholders will react at Wednesday's general meeting of shareholders, according to industry analysts, Tuesday.

Last Thursday, the pension fund's trustee committee unveiled its opposition to Shin's reappointment, citing his responsibility for damaging the company's enterprise value and infringing on the rights of shareholders. It made the disclosure a day after the Center for Good Corporate Governance (CGCG) advised LG Chem's shareholders to vote against the vice chairman.

CGCG pointed out that LG Chem's minority shareholders suffered significant losses when the chemical firm spun off its battery business into LG Energy Solution in September 2020.

“We recommend LG Chem's shareholders oppose the reappointment of Shin, who damaged his company's enterprise value and pushed ahead with the spinoff that was not in the interest of minority shareholders,” the local proxy adviser said in its report.

LG Chem declined to comment on the stance of the NPS and CGCG.

When LG Chem held an extraordinary general meeting of shareholders in 2020 to spin off LG Energy Solution, the pension fund opposed the plan, expressing concerns about shareholder value. Most minority shareholders also took a negative stance, because they were not allowed to convert their LG Chem shares into the lucrative battery subsidiary's shares.

At that time, the NPS had over 10 percent in LG Chem as its second-largest shareholder, but overseas shareholders supported the spinoff and enabled the proposal to be passed at the extraordinary general meeting.

According to LG Chem's regulatory filing, the NPS was still its second-largest shareholder owning a 6.8 percent stake as of the end of 2021, although the pension fund had continued to reduce its stake in the chemical company. The largest shareholder was LG Corp. with 33.34 percent.

Given that minority shareholders owned a combined 56.14 percent, their decision has been viewed as key for the vice chairman's reappointment as inside director.

Some of them have already urged other minority shareholders to vote against the company's proposals, complaining about a sharp drop in LG Chem's stock price to below 500,000 won ($410) from a peak of 1.05 million won in January 2021.

“We should thwart management's plan at the general meeting of shareholders,” one of the retail investors wrote online, asking management to come up with additional shareholder return policies.

However, it remains unclear how many minority shareholders will unite against management.

“Those who had opposed the spinoff sold their shares when its price reached its peak last year,” an industry official said. “Most of the current minority shareholders were aware of the planned spinoff when they bought LG Chem stocks.”