South Korea’s state pension fund has decided to vote against the appointments of some board members at major banks during their shareholders’ meetings as they are not qualified for the positions.
At the end of last year, the National Pension Service (NPS), the largest institutional investor in the country, introduced its own set of guidelines as an active shareholder, compiled by a fund management committee led by Health and Welfare Minister.
At that time, financial industry had a lot of concerns about the guidelines as many industry insiders found them abstract and ambiguous. Many also viewed that the guidelines will initiate the NPS’ active engagement in the corporate decisions of its portfolio financial firms.
The NPS’ nine-member special committee on fiduciary responsibility had a meeting on March 19 and has decided that it would cast a dissenting vote against reappointment of Shinhan Financial Group chairman and Woori Financial Group chairman at upcoming shareholders’ meetings, citing their lacking management capabilities that has undermined corporate value and violated shareholders’ rights. The pension fund also decided to oppose appointment of all of Hana Financial Group’s external and internal director nominees. The committee spent more than four hours discussing the issue to come to the conclusion.
According to the guidelines, the NPS as a shareholder would be entitled to take action in cases where board members engaged in misconduct such embezzlement or breach of trust, if the company refused to address the matter through dialogue.
The world’s third largest pension fund holds a 9.55 percent stake in KB Financial, a 9.38 percent in Shinhan Financial, a 10 percent in Hana Financial and a 7.71 percent in Woori Financial. The pension fund overseeing 700 trillion won holds five percent or more stake in 302 domestic listed companies as of 2019.
Following the adoption of a stewardship code in July 2018, the NPS made a set of guidelines aimed for active shareholder engagement to ensure responsible corporate management. The pension fund further developed the stewardship code into guidelines for shareholder activism, categorizing issues into two – high-priority matters or any matters relating to unexpected concerns.
Some view that South Korean government has granted the NPS the authority to demand dismissal of corporate board members and call for changes to a company’s articles of association. This is because the fund management committee – the highest decision-making body of the NPS – has selected companies to exercise its voting powers and decided what actions to take. The fundmanagement committee is composed of 20 members, and among them six are appointed by President and Health and Welfare Minister chairs the committee
Under the new set of guidelines, the NPS has changed its officially listed purpose for holding shares of Shinhan Financial and Hana Financial to “general investing” from “non-engagement investing.” With general investing status, the NPS will be allowed to exercise shareholder rights against companies more actively, pushing them to increase dividends and improve their corporate governance systems, etc. (By Sohn Hyun-ji and Lee Eun-sol)