A code of intimidation

The National Pension Service (NPS) has received a setback to the use of its stewardship code, a campaign to exercise greater responsibility as an institutional investor for better corporate governance and shareholders’ returns. It invoked the guidance to demand Namyang Dairy Products include a corporate article stipulating the establishment of an outside advisory board to improve its stingy dividend policy. The company issued a statement rejecting the call from the national pension fund, saying it is “excessive” for a shareholder of 6.15 percent. It also argued an increase in payouts would only fatten the owner family and related individuals, as they hold a combined 53.85-percent stake.

The mid-sized company has revolted against the world’s largest pension fund even at the risk of angering its institutional big brother, as well as the government. President Moon Jae-in last month said the NPS will exercise the stewardship code “proactively” against the excesses and irregularities of large shareholders in big companies.

The NPS has chosen Namyang as an exemplary case for its unsatisfying dividend policy, as shareholders’ returns have been poor compared to its cash reserves. Namyang’s cash payout stopped at 17 percent against its earnings in 2017, for instance. Its dividend payout hovers sharply below the average of Kospi stocks. As a result, the NPS has demanded that the company give greater returns to its shareholders. But the company had a good reason to keep cash dividends low, as payouts would be of little benefit to common shareholders.

The company argued using its cash reserves to indulge large shareholders would only waste cash reserves that could be otherwise spent on future growth and hurt corporate value. No companies can do business with their own vision if the NPS meddles in their affairs for self-serving purposes. The NPS must stop using the stewardship code to intimidate companies.

JoongAng Ilbo, Feb. 13, Page 34