South Korea’s National Pension Service (NPS) has decided to reject board candidates ahead of shareholder meetings to be held by “big four” domestic financial holding companies, in a move that indicates the public pension fund’s growing focus on misconduct by financial firms.
The NPS’ fiduciary committee held an internal meeting on March 19 and decided to vote against the appointments of Cho Yong-byoung, Chairman of Shinhan Financial Group, and Son Tae-seung, Chairman and CEO of Woori Financial Group, as a board member of each company. It also made a decision to oppose to the appointments of seven independent directors nominated by Hana Financial Group.
The pension fund’s reason for veto was the same for all three items: Negligence in fulfilling obligations to oversee any action that may damage the company’s value and/or infringe shareholders’ right. If deemed as such, the NPS can reject board candidates according to its policies concerning fiduciary duty.
Three financial holding companies are all involved in two largest financial incidents that occurred last year in the country: Woori Financial Group and Hana Financial Group are involved in the misselling of derivative-linked fund (DLF) products, while Shinhan Financial Group’s affiliate, Shinhan Investment, played a role as a key distribution channel for Lime Asset funds that caused huge losses to investors.
The NPS had to focus on a negative impact of these two financial incidents on the confidence of people in the country’s financial industry when it made voting decisions, industry watchers said. Domestic proxy advisory firms also reportedly considered these financial incidents when making recommendations to clients.
There are also legal risks associated with corporate governance, especially for Woori Financial Group and Shinhan Financial Group. Woori Financial Group Chairman Son Tae-seung – who faced heavy penalties from the country’s financial watchdog with regard to the misselling of DLF products – filed a request to suspend the execution of the penalties. Shinhan Financial Group Chairman Cho Yong-byoung also faced trail for alleged cronyism.
Whether Son and Cho can be reappointed as chairman will be determined at their respective company’s upcoming shareholder meetings which will be held later this month. In such a situation, the NPS’s opposition would increase pressure to the companies.
A stronger voice from the NPS about corporate governance issues in financial conglomerates contrasts with the pension fund’s voting pattern for the last few years. That is why many industry watchers think that the recent two financial incidents are the reason behind such a shift.
“The NPS vote would have little impact on passage of the items because it has about 10 percent voting power. But [financial holding companies] would feel pressure as the NPS is the biggest institutional investor in the country,” an industry insider said. (By Jin Hyun-woo)