NPS demands clearance on misconduct allegations to raise scare about derivative suits

The National Pension Service is stepping up big-brother role over Korean companies, demanding confirmation on any management wrongdoings and scaring them with possible shareholder derivative lawsuits.

The NPS last month sent out letters to 20 big conglomerates as their major shareholder to check details about their previous price-fixing actions, management’s embezzlement, and misappropriation issues. The move is suspected to be readiness for shareholder derivative actions.

Among the companies who received the inquiries are Samsung C&T, GS Engineering & Construction (GS E&C), Daewoo Engineering & Construction (Daewoo E&C), Hyundai Steel, SK Networks and Lotte Himart. Hyundai Motor, of which the second-largest 8 percent stake is owned by the NPS, also had received inquiries about pending issues.

This is rare for companies to receive such detailed questions related to “fair trade” from the NPS. Some say it is simply for fact checking before a new law allowing punitive actions on the management when fatal accident happens at work site takes effect from Jan. 27.

The NPS earlier proposed a revised bill on fiduciary duty activity guidelines that call for 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 comprised of outside representatives.

The approval has been suspended in the face of business protest, but the NPS reportedly is planning to grant a go-ahead to the bill soon.

The special committee is responsible for exercising shareholder rights on companies invested by the NPS. It has so far been involved in shareholder proposals concerning non-management issues such as corporate dividend policy.

Shareholder derivative lawsuits would be against CEOs, board directors or others. This means the individuals will have to pay the damages, not the company, if they lose their cases, said a source from the business community.

Frequent representative lawsuits could affect stock prices of companies, weighing on losses to the NPS as well.

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