NPS is abusing its power

The National Pension Service (NPS) has mandated its proactive exercise of shareholders’ rights. Under the new guidelines, it can demand changes to articles of incorporation and dismissal of members on management boards if it thinks corporate values have been impaired by criminal offenses like misappropriation, breach of trust and embezzlement. The new mandate paves the way for the NPS to interfere with corporate management. Little has changed from the original outline despite strong protest from the business community last month.

The business sector cannot be overreacting to the possibility of the NPS meddling in its subjective judgment. The guideline enables the NPS to call for a shareholders’ meeting to propose ousting a board member under criminal investigation before a court delivers a final ruling. It also plans to invoke the stewardship code if it deems a company’s dividend policy or executive compensation packages are “unreasonable.”

The management of a company has a duty to oblige with the demands of shareholders. The obligation has become more important with increasing owner risks in family-run Korean corporate empires. No doubt a shareholder has the right to keep watch over “owner risks” with an eye on long-term returns. But the ownership structure of the NPS itself raises questions about its intervention in business activities.

First of all, the NPS lacks credibility in political neutrality and investment expertise. Its highest decision-making body is a 20-member fund management committee. The committee is headed by the health and welfare minister and five others coming from the government. The others representing the employers and employees or individuals under subscription also cannot be ensured of political neutrality or expertise. The fund’s investment return over the last 10 years recorded just half of the average rate of the Canadian Pension Plan. Despite the controversy over its mobilization as a political tool for the ousted President Park Geun-hye, little has changed in its ownership structure under the current Moon Jae-in administration.

The NPS holds more than a 5 percent stake in nearly 40 percent of Korea’s listed companies. It has a mighty influence over the Korean capital market. If the NPS gets involved with their management affairs under its current governance structure, the concerns over pension socialism and a government trying to tame companies will not go away. Companies won’t invest or expand freely under such an environment. The NPS must come up with measures to clear such concerns.