 Chairman of the Presidential Council for Future and Vision |
A senior presidential aide said Tuesday that the national pension fund should raise its voice in corporate boardrooms against the unchecked power of chaebol, the controlling families of Korea’s big business groups such as Samsung and Hyundai.
In virtually the first public conference hosted by a government agency on corporate governance, Kwak Seung-jun, chairman of the Presidential Council for Future and Vision, said that the 350 trillion won National Pension Service (NPS) should get involved in the appointment of CEOs of firms it invests in, as do public and pension funds in the West. He urged the National Assembly to institutionalize such a decision-making process at the NPS.
The remark from Kwak, known as one of the most trusted aides to President Lee Myung-bak, means that Korean society is slowly waking up to the problems of the murky corporate governance structure at many firms.
It is also in line with President Lee’s recently propagated initiative of a “fair society” and the tax agency’s investigations into dubious deals inside big business groups.
“The Korean economy needs a catalyst to innovate it. I believe that the public pensions’ exercise of its shareholder’s right is the most effective way to keep the large companies in check. They have become too powerful,” said Kwak, who is also a professor of economics at Korea University, at the conference held at the Lotte Hotel in central Seoul.
The NPS, the world’s fourth largest pension fund, is growing fast. It already has more than 5 percent of shares in 139 firms listed in Korea but has rarely intervened in management decisions at those firms, while pursuing passive financial returns.
Kwak cited Samsung and Shinhan as two examples that the NPS has failed in its fiduciary duty. The fund has more shares (5 percent) in Samsung Electronics than its leader Lee Kun-hee (3.38 percent), but it has done little to monitor Lee’s management, Kwak said. At Shinhan Financial Group, it is the second largest shareholder but could not prevent a management row that ruined the group’s corporate image and its stock price last year.
Kwak’s remarks, as well as the occurrence of the conference itself, immediately unnerved some chaebol. An official from the Federation of Korean Industries, a powerful chaebol lobby group, raised objections during a question-and-answer session that the NPS should not and cannot interfere with the management of its member firms.
“Does the NPS really know that much about business management? I know that there are only two people working on corporate governance at the NPS. They are simply not capable of doing so, and we also suspect that the NPS can be influenced by politics.”
Others, especially those from the investment industry, cheered the presidential committee’s drive.
“Well, I guess the world has changed. I’m glad that now I can speak aloud on the corporate governance issue,” said Lee Won-il, CEO of Allianz Global Investors Asset Management Korea, after participating in a panel discussion. Lee said he is managing a 2 trillion won fund for Allianz, which is invested in firms with good corporate governance culture, but has been discouraged from promoting his fund too much in Korea, until yesterday.
Korea’s chaebol are notorious for being a “Korea discount” among global investors. Most of the big business groups such as Samsung, Hyundai and SK have seen their leaders caught more than once for corporate crimes such as embezzlement, cooking the books and tax evasion. But in most cases the leaders were released with suspended sentences for the “sake” of national economic growth.
Such a concept has changed since the Asian financial crisis, albeit slowly, as some large conglomerates such as Daewoo went bankrupt despite the strong, patriarchal leadership of their CEOs, while others like POSCO have grown into global powerhouses despite the lack of concentrated leadership by a single family.
Late last year, the NPS said it was reinforcing its investment strategy team regarding environmental, social and corporate governance. It is currently chaired by Jun Kwang-woo, a former chief of the government financial regulating agency.
Jun has said that he does not have any political link or motivation and cannot use it even if he has any. The NPS is supervised by the Ministry of Health and Welfare and subsequently by the National Assembly.
