A String of Figures Opposed by the NPS Reappointed as Corporate Directors: NPS Successfully Blocked Only 7 of 174 Appointments

Kim Hyang-mi 2021. 9. 23. 15:59
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The National Pension Service of Korea (NPS), as a shareholder, might vote against the appointment of a corporate director or auditor, but the state pension service’s opinion was not likely to determine the outcome. In reality the state pension is limited, for it only owns a small portion of shares compared to the shares in favor of the company’s founding families, but experts argue that the NPS should be more active in its responsibilities as a trustee of the national pension and make more efforts to persuade other shareholders.

According to the information that Democratic Party of Korea lawmaker Ko Young-in, a member of the parliamentary Health and Welfare Committee, secured form the National Pension Service on September 22, the NPS voted against the appointments of 174 directors and auditors at companies where the NPS was a shareholder in the first half of this year. But the state pension was only successful in blocking seven of the appointments (4%).

In 100 of the cases, the NPS directly exercised its right and voted against the appointment, while in 74 cases the vote was cast by companies entrusted with management. The reason the state pension service voted against the appointments was to stop the reappointment of executives serving for a prolonged period (12.6%) and to block the appointment of former or incumbent executives and employees of the company in question, its affiliates, and important partner companies (24.7%). The NPS also opposed the appointment of directors who had a low attendance rate at board meetings (8.6%), who held too many positions (17.8%), and who neglected their supervisory duties (10.9%). Other reasons also accounted for 25.3% of the votes that the NPS cast against the appointment. Yet, the NPS managed to stop the appointment of only four directors and three auditors.

A look at the percentage of appointments that the NPS successfully blocked among the votes that it cast against the appointments showed that in 2017 and 2018, the NPS was successful in only 0.9% of the cases. The rate increased to 6% in 2019 but dropped again to 2.4% in 2020. In July 2018, the Stewardship Code was introduced, demanding a more active role from the National Pension Service as a trustee. Since then, the NPS has constantly expressed its opposition to personnel issues in companies that the NPS deemed problematic, but the state pension service has not been effective in getting its views reflected.

For instance, at a Korean Air shareholders’ meeting in March this year, the National Pension Service voted against the reappointment of Cho Won-tae, chairman of Hanjin Group, as a board director--the NPS owns 8.52% of Korean Air shares--stating, “It can lead to neglect in the supervision of activities that can violate the interests of shareholders, such as the failure to conduct due diligence in the process of acquiring Asiana Airlines along with concerns of unfavorable details in the contract.” But Cho was reappointed with 82.84% of the votes. Last year, the NPS opposed the reappointment of Cho Hyun-joon as CEO of Hyosung, after Cho was found guilty of embezzlement and breach of trust, but Cho successfully retained his position with over 70% of the votes. In 2019, the NPS opposed the reappointment of an outside director who neglected his obligation to supervise Samsung Biologics for his responsibility in failing to prevent accounting fraud, but he was reappointed with overwhelming support.

In the business world, experts argue that it is not easy for the National Pension Service to get its voice through with the companies’ founding families and incumbent directors overseeing management owning or securing an overwhelming percentage of shares. But others also point out that the NPS simply expressed its opposition and was passive in playing any further role. Lawmaker Ko Young-in said, “The National Pension Service, as a trustee, should review the entire process for responsible investment and actively exercise its right as a shareholder so that its vote can become a compass (pointing the direction) for other investors.”

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