ED Legitimate shareholder rights

Pension fund should exercise stewardship actively when needed

The management committee of the National Pension Service has approved proposed guidelines recently for shareholder activism by the country's largest state pension fund. The go-ahead will pave the way for the fund to exercise its stewardship more actively by, for instance, demanding companies in which it holds stakes to dismiss corporate executives over breach of trust and other illegal activities.

The NPS also designed its guidelines so that it can ferret out those businesses which fail to set up, make public and carry out reasonable dividend policies, or have unduly high ceilings for the salaries of corporate board members. It will then force the companies to rectify these practices and, for those that drag their feet in doing so, make a shareholder proposal for change.

The state pension fund first exercised its shareholder's rights in February last year on Hanjin KAL, the holding company of Korean Air whose corporate value fell because of the owner family's irregularities and abuses of their employees. Because of the social controversy caused by the move, the NPS has come up with the guidelines to help increase predictability for market players by specifying principles, criteria and procedures in the exercising of its shareholder rights.

“The guidelines are part of our efforts to manage the National Pension Service in a more reasonable and fair manner,” Minister of Health and Welfare Park Neung-hoo said while presiding over a meeting of the management committee. “We will make principles and standards more transparently to ensure the fund's voting rights are not exercised unilaterally.”

If the NPS applies the guidelines appropriately, it is expected to prevent the fall of corporate value resulting from “owner risk.” It is also understandable that the business community has concerns, including those about the somewhat ambiguous conditions for exercising the pension fund's voting rights.

As we know, however, the guidelines' purpose is not to meddle in corporate management excessively but to protect shareholders and stakeholders from the fallout from malpractices by the owner families and their cronies. The pension fund needs to exercise its legitimate rights whenever necessary for this purpose.