NPS plan on shareholder derivative action draws strong protest from business

The National Pension Service (NPS) has put on hold its move to empower an independent body responsible for acting out stewardship role of South Korea’s largest public institution over listed companies to decide on shareholder derivative actions upon strong protest from the business community on fears of abuse in the power and micromanagement.

Last month, the NPS proposed a revised bill on fiduciary duty activity guidelines that calls for the the fund’s top decision-making body National Pension Fund Management Committee to hand over authority concerning shareholder activities and responsible management to a lower Special Committee on Responsible Investment & Governance largely comprised of outside representatives with independent say over acting out its shareholder’s duties in listed companies. The approval of the change has been suspended in the face of business protest.

The move is to “act on behalf of minority shareholders who have smaller resources to fight companies,” said an official from the fund management committee.

The plan has been strongly contested by the business association as the special committee lacks expertise on fund management and representation of broad social groups. The NPS could raise lawsuits ahead of the shareholder’s meeting season in spring.

Korea’s seven major business groups including the Korea Chamber of Commerce and Industry and Korea International Trade Association released a joint statement Monday protesting to NPS’ “punitive action” on companies who are responsible for 42 percent of pension premiums. The fund has not even bothered to hear out opinions from the business sector, it argued.

The Special Committee on Responsible Investment & Governance is responsible for exercising shareholder rights on companies invested by NPS. The committee has been so far involved in shareholder proposals concerning non-management issues such as corporate dividend policy.

The business community demands the NPS to reconsider its move, calling for the institutional investor to clearly regulate key details in legislation such as related procedure.

They pointed out frequented representative suits can lead to losses to NPS as stock prices could be impaired on a lawsuit by a major public institution.

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