Pension fund rejects shareholder activism
The National Pension Service (NPS) Investment Management headquarters in Jeonju, North Jeolla Province / Courtesy of NPS
Attention now focused on LG, Hankook & Company
By Park Jae-hyuk
Investors are paying keen attention to the stance of the National Pension Service (NPS) on shareholder activism against LG and Hankook & Company, after the pension fund has shown a tendency to object to most shareholder proposals raised during the proxy season this year.
As of Wednesday 3 p.m., the NPS did not disclose its position on LG's planned spin-off of the group's affiliates, which has faced backlash from U.S. hedge fund Whitebox Advisors and global proxy advisers, including Institutional Shareholder Services (ISS) and Glass Lewis. The state pension service also remained silent about shareholder proposals made by Hankook & Company Vice Chairman Cho Hyun-sik, who has been locked in a dispute with his younger brother, CEO Cho Hyun-bum, over control of the nation's leading tire maker.
The NPS is the second-largest shareholder of LG's holding company, LG Corp., with a 7.81 percent stake and holds a 5.21 percent stake in Hankook & Company. It is therefore considered to have casting votes in the forthcoming general shareholders meetings of the two conglomerates.
“Because LG Corp.'s largest shareholder and his affiliated people collectively hold a 46 percent stake, the spin-off plan is highly likely to be passed at the shareholders meeting,” Yuanta Securities analyst Choi Nam-kon said in a report. “However, most foreign shareholders tend to follow the proxy advisers' recommendations, so if the NPS decides to oppose the spin-off plan, it will be impossible to pass it at the shareholders meeting.”
The Hankook & Company vice chairman has officially requested the pension fund's support for his governance reform drive and benefits for minority shareholders.
“I believe the NPS will fully understand my intention to restrain the management for sustainable growth,” he told reporters last week.
However, the NPS' latest decision to vote against proposals by Kumho Petrochemical's largest shareholder, Park Chul-wan, and Hanjin Transportation's second-largest shareholder, HYK Partners, indicated that the pension fund may do the same in the general shareholders meetings of LG Corp. this Friday and Hankook & Company on Tuesday next week.
It decided to side with Kumho Petrochemical's management regarding the amount of dividends and partial changes to its articles of association. As the second-largest shareholder with an 8.16 percent stake, it will vote for only a single shareholder proposal, regarding the appointment of Park as an executive director.
“We made the decision as it does not cause any conflict with the company's board of directors,” the NPS said in a statement. “Regarding the decision, however, there were some concerns over possible instability of the company's management.”
Based on backing from the NPS and ISS, Kumho Petrochemical Chairman Park Chan-koo appears to be more likely to tighten his grip after the shareholders meeting, Friday, despite backlash from several shareholders, including the largest one who is also the chairman's nephew, the California Public Employees' Retirement System, Norges Bank Investment Management, and proxy advisers, including Glass Lewis, Sustinvest and Center for Good Corporate Governance.
The NPS holds a 6.2 percent stake in Hanjin Transportation, and the pension fund will disagree with all shareholder proposals by HYK. Its decision is expected to block the private equity firm from joining the board of the Hanjin Group's logistics arm after a shareholders meeting Thursday.
Although the pension fund decided to vote against Korean Air's appointment of Hanjin Group Chairman Cho Won-tae as the carrier's executive director and Woori Financial Group's reappointment of its nonexecutive directors, these are irrelevant to any conflict with shareholders of those companies.
Regarding CJ Logistics, NH Investment & Securities, Shinhan and KB financial groups, the NPS will agree with all suggestions made by their board of directors.