[Column] The 'Crossed the Line' National Pension Guidelines

[Asia Economy Reporter Park Ji-hwan] The introduction of an active shareholder rights system by the National Pension Service (NPS) is once again sparking controversy. The NPS is pushing to introduce guidelines at the upcoming Fund Management Committee meeting next month that would require investee company boards to disclose management succession plans and limit management’s defense against hostile mergers and acquisitions (M&A) attempts.

This is an extension of the stewardship code (principles of fiduciary responsibility) introduced in July 2018, which laid out the fundamental principles of shareholder activism, and the active shareholder rights exercise guidelines, including director dismissal and appointment, passed by the Fund Management Committee at the end of last year. While the previously introduced stewardship code and others painted the big picture of NPS’s shareholder activities, the new guidelines serve as detailed instructions specifying concrete actions.

The current points of controversy in the guidelines include △the board of directors preparing and disclosing a specific CEO succession policy △prohibiting management from using means such as convertible bond issuance, capital structure changes, or M&A as tools to protect themselves during hostile takeovers.

In the business community, while there is understanding of the direction to promote systems that enhance shareholder value, concerns are raised that this might exert excessive influence over management activities such as defending management rights related to succession and hostile M&A attempts. There are also criticisms that this constitutes excessive managerial intervention beyond the level of information disclosure required by current Capital Market Act and Commercial Act regulations.

The NPS’s move to strengthen shareholder rights inevitably places a significant burden on companies. According to FnGuide, there are currently 283 publicly listed domestic companies in which the NPS holds more than 5% of shares. Among them, 91 companies have over 10% ownership. Although these principles are recommendations, it is not an easy decision for companies to go against the NPS, which holds the second-largest share after major shareholders. There are voices warning that if the NPS interferes too intricately in corporate management, it could unintentionally pave the way toward 'pension socialism.'

Above all, it is welcome that the NPS’s recent actions raise the shareholder rights of minority shareholders. However, this cannot be the ultimate goal if it comes at the expense of certain groups. The real adversaries are the corporate groups that obscure transparency in management through power abuse and arbitrary actions, not the members of all honest companies.

It is time to put heads together to find ways for shareholders, managers, employees, and creditors to coexist with their rights intact without any party being forced into unilateral sacrifice. Currently, the NPS seems overly focused solely on securing shareholders’ rights.

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