ED Step in right direction

NPS may exercise voting right against Hanjin chairman

The National Pension Service (NPS) will decide next month whether to exercise its shareholder rights over the country's largest air carrier Korean Air and its holding company Hanjin KAL Corp. If the state pension operator decides positively, this will mark a milestone in institutional investors' role not only in protecting shareholders' interests, but also improving corporate governance.

The move came after the NPS introduced a stewardship code last July, a set of guidelines allowing the fund operator to intervene in the management of companies it invests in. The code is to enable institutional investors to actively engage in corporate governance to promote the interests of shareholders.

By wielding their voting rights more actively, the NPS and other institutional investors can avoid long-held criticism that they have only played the role of rubber-stamping any corporate decisions at the cost of shareholder values. Particularly, the nation's top pension fund can make a stable profit to bring more benefits to subscribers.

So the NPS' move regarding the airline and its holding firm is a step in the right direction. The pension fund will not have to hesitate to say no to the two companies in their shareholders' meeting scheduled for March. The reason is that Hanjin Chairman Cho Yang-ho and his family pose a serious threat to the management of the transportation group due to allegations about their abuse of power, embezzlement and breach of trust.

Chairman Cho's daughter Heather Cho, a former Korean Air executive vice president, earned her ill reputation due to the “nut rage” incident in 2014. Last year Cho's wife and his other daughter were summoned for question over alleged physical and verbal violence against company employees and others.

Regrettably, the NPS and other institutional investors have so far failed to exercise their shareholders' rights to check the owner families of conglomerates. The NPS even voted for a controversial 2015 merger between two Samsung Group affiliates ― Samsung C&T and Cheil Industries, yielding to pressure from then President Park Geun-hye.

The wrong NPS action reportedly caused the losses of 300 billion won ($267 million) to Samsung Group. It only facilitated the transfer of management rights from Chairman Lee Kun-hee to his son, Samsung Electronics Vice Chairman Lee Jae-yong. The ousted President Park was found guilty of forcing the group to hand over huge funds to her longtime friend Choi Soon-sil in return for the NPS' vote in favor of the merger.

If the NPS had adopted a stewardship code earlier and voted against the merger, shareholders could have saved their losses. As such the disgraced president could have avoided bribery charges as far as Samsung is concerned. This explains why the NPs should play a more active role as the shareholder of many large companies affiliated with family-run conglomerates, or chaebol.

The NPS is the world's third-largest pension fund with 630 trillion won ($561 billion). It is the second-largest shareholder of Korean Air with an 11.5 percent stake and the third-largest shareholder of Hanjin KAL with 7.3 percent. If it collaborates with other institutional investors, the NPS may oust the corrupt, incompetent and unruly Cho family from management. It remains to be seen if the pension fund operator will do so.