Pension power goes too farThe Ministry of Health and Welfare has drawn up a new guideline for the National Pension Services (NPS) to mandate stronger activism in the management affairs of the companies it has a sizable stake in. It aims to rewrite the NPS’s investment guidelines, authorizing it to demand an ousting of a board chair or changes in the corporate articles “to raise its long-term return rate” for the country’s largest institutional investor which oversees 700 trillion won ($598 billion) in pension assets.
The so-called proactive role of the institutional investor has gone too far. The guideline would allow the NPS to seek dismissal of board members upon allegations of their wrongdoings even before their criminality is confirmed. That would mean the NPS can discuss replacing management if government watchdogs like the Fair Trade Commission (FTC) suspect misdeeds at the executive level. But, the FTC has lost in 30 percent of the lawsuits against its penalties levied on companies and executives.
The move also can further dampen corporate spirit. For instance, the crime of a breach of duty is hard to define. Many executives have been tried for the breach after aggressive management moves. But most of them were cleared by the Supreme Court. Under the new government guideline, corporate executives can lose their job even if they are ruled not-guilty in court. How can the government expect companies to increase hiring and investment under such circumstances? Excessive intervention from the NPS will splash cold water on economic recovery. Without risk-taking entrepreneurship, companies cannot grow. If companies’ growth stagnate, so do their stock prices and returns for the NPS.
Before the government goes out to have NPS reform the corporate sector, it should revamp the gigantic fund system first. Investment experts take up a minority in the fund management committee, the top decision-making body. At the Canada Pension Fund, famous for its wise management, the investment committee is fully made up of experts in the area and therefore can be free of political influence.
The government is out to tame the corporate sector before rationalizing the management of NPS and strengthening its sovereignty. It is blocking management from all sides.
No matter how many times President Moon Jae-in drops by corporate sites and praises them, Korea Inc. won’t be revived if the government continues to meddle. The primary role of NPS is to safeguard people, not watch over companies.