Stewardship questions

The steering committee of the National Pension Service (NPS) has determined when and how to exercise its voting rights on a number of stocks it invested in. In a Monday meeting, the largest institutional investor in Korea decided to adopt the so-called stewardship code — a set of guidelines on exercising voting rights as institutional investors to engage in corporate governance in the interests of shareholders.

As for the NPS’s participation in the management of companies it invested in, the NPS decided to exercise its voting rights only after receiving an approval from its fund management committee. The fund also decided to confine its voting rights to companies which may cause serious damages to their shareholders. Despite such strings attached, there is the possibility of the NPS trying to step in the direct management of companies if it wants to.

Experts stress that the main purpose of the fund’s adoption of the stewardship code should be raising its long-term profits. The Korea Employers Federation urged the NPS to run its stewardship code as fairly and transparently as possible without excessively intervening in companies’ business activities or trying to distort the market mechanism in the process of exercising its voting rights.

The NPS has gargantuan assets amounting to 635 trillion won ($567 billion). One fifth of the money is invested in domestic companies. The state investor has over five percent stakes in 299 listed companies. Given its immense influence in the corporate sector, the government must ensure — and boost — independence in its investments.

The state fund said it will make important decisions by expanding its special committee for exercising its voting rights to a civilian-focused committee to make appropriate investment decisions. But it is questionable whether the enlarged committee will have independence in crucial investment decisions, because the minister of health and welfare has a final right to appoint members of the civilian-focused committee.

The NPS is owned by the people, not the government. It should not infringe on the management of the corporate sector, arbitrarily intervene in corporate governance or lean toward the so-called “pension socialism.” It must apply the stewardship code to meet the fund’s original goal of promoting shareholders’ interests.

JoongAng Ilbo, July 31, Page 30