[Viewpoint] Understanding the Origins of the Stewardship Code Accurately

Jang Deok-jo, Professor at Sogang University School of Law

The Stewardship Code has been established in South Korea as well, and related discussions are active. The general understanding of the Stewardship Code in South Korea is that institutional investors actively engage in the management of companies invested in with their clients' money to bring greater benefits to their clients. It is seen as a form of shareholder activism. However, the concept of the Stewardship Code originated in the United Kingdom, and countries around the world are adopting related codes modeled after the UK. Therefore, an accurate understanding of its origins in the UK is required. The adoption of the Stewardship Code is an international trend, and Korean companies must actively understand and respond to the Stewardship Codes of countries worldwide.

The dictionary meaning of 'stewardship' is supervision or management. However, the 'supervision or management' here does not only refer to the management of the assets of the client for whom the institutional investor bears fiduciary responsibility. The 'Walker Report' emphasizes stewardship as a public responsibility corresponding to the benefit shareholders enjoy due to limited liability. This encourages active shareholder engagement and views it as the fulfillment of public responsibility as shareholders. Next, looking at the UK Stewardship Code, the primary holder of stewardship is not the institutional investor but the 'director.' The director, in their position as supervisor or manager of the company they serve, is the primary holder of stewardship, and shareholders, including institutional investors, are secondary holders. The director’s stewardship was stipulated in the 2010 'UK Corporate Governance Code,' which led to the creation of a separate UK Stewardship Code for the stewardship of institutional investors who are shareholders.

What is important to point out here is that the UK’s understanding of stewardship does not mean that institutional investors bear fiduciary responsibility only to their clients. Directors bear stewardship toward the company, and shareholders, including institutional investors, bear stewardship toward the companies they invest in. Furthermore, when fulfilling stewardship, one should not only pursue the interests of clients or investee companies but also seek the overall economic and public interests, such as enhancing management trust and improving market functions, while considering environmental, social, and governance factors.

The UK Stewardship Code, revised last year, explicitly states that environmental, social, and governance factors must be considered and defines stewardship as follows: "Stewardship is the responsible allocation, management, and oversight of capital to create sustainable value for beneficiaries, the economy, and society." The UK Stewardship Code is a product of normative discussions including desirable corporate governance through multiple economic crises and requires consideration of the broad interests of society, including workers, the environment, and social factors.

In our case, there are also strong voices opposing the exercise of shareholder rights by the National Pension Service and others. Criticisms include low political independence, high possibility of government intervention, and concerns about abuse as a means of infringing on management rights or corporate control. However, in many cases, we have controlling shareholders, and company profits may be harmed due to company operations for the private interests of controlling shareholders, and the board of directors appointed by controlling shareholders may not be independent. Therefore, the argument that pension funds such as the National Pension Service should actively step in for effective monitoring of company operations is gaining strength. Looking at this issue from the original meaning of the UK Stewardship Code, it requires considering the broad interests of society, including public interests such as workers, the environment, and society, when fulfilling stewardship. The National Pension Service is in a favorable position to judge and serve these interests, so exercising shareholder rights may be more aligned with the original intent. Therefore, even if there is opposition to the exercise of shareholder rights by the National Pension Service, efforts should be made to establish an effective management system that can fulfill corporate social responsibility.

This content was produced with the assistance of AI translation services.