National Pension Service Includes Management Succession Relaxation Measures in 'Investment Company Guidelines'

Reflecting Business Sector's Position, Guideline Revised
Discussion Scheduled at Next Year's Fund Management Committee

Companies Say "Succession Policy Disclosure Still a Burden"

[Asia Economy Reporter Minji Lee] The National Pension Service (NPS) has postponed the adoption of the 'Guidelines on the Composition and Operation of the Board of Directors of Invested Companies (hereinafter referred to as the Investment Company Guidelines)' for active shareholder engagement until next year. The revised guidelines have been confirmed to contain more relaxed provisions, such as the removal of the clause requiring the establishment of a succession management committee to evaluate annually?a major point of contention?and allowing at least two-thirds of audit committee members to be outside directors.

According to industry sources on the 17th, the Investment Company Guidelines submitted to the NPS Fund Management Committee (Fund Committee) the previous day are said to reflect the management's stance more than the draft released in July. An NPS Fund Committee official explained, "The guidelines, which were stronger than the law, have been significantly revised," adding, "Compared to the draft released in July, the management's views on succession have been largely incorporated." Due to time constraints, the 10th Fund Committee meeting held the previous day did not discuss the Investment Company Guidelines. However, the guidelines as submitted will be reviewed for adoption next year by the Fund Committee, the highest decision-making body, without going through the Stewardship Responsibility Expert Committee (Stewardship Committee).

On the 16th, the 10th National Pension Fund Management Committee meeting is being held at the Plaza Hotel in Jung-gu, Seoul. Photo by Moon Honam munonam@

The revised guidelines present relaxed measures on key issues such as △establishing CEO succession policies and △composing audit committees with outside directors. Regarding succession policy, the original draft required companies to create succession policies, establish management committees, evaluate successors and related senior executives, and actively disclose succession plans. However, the revised guidelines have softened this to "make efforts to create and disclose succession policies." Additionally, the clause requiring board approval for major personnel decisions such as promotion, dismissal, new appointments, and reassignment of executives responsible for business execution has reportedly been removed.

The composition requirements for audit committees have also been relaxed. The draft initially mandated that all audit committee members be outside directors to ensure financial and accounting soundness and transparency. The revised proposal lowers this ratio to two-thirds. This issue had been criticized for exceeding the legal provision under the Commercial Act, which requires at least two outside directors.

Regarding this, the management sector acknowledges the significant relaxation but still finds the succession policy burdensome. An industry insider said, "Succession activities are a confidential part of corporate management, and in the Korean cultural context, disclosing them in advance poses a high risk of attacks from external forces." He added, "While we understand NPS's intention to strengthen shareholder rights, it is uncertain whether these guidelines will yield practical benefits or effectiveness."

It was also pointed out that if the revised guidelines escalate from mere guidance to regulations, it would inevitably impose a heavy burden on companies. If NPS intends to exercise active shareholder rights, it could simply make shareholder proposals, but creating such guidelines is viewed as excessive management interference. A business official criticized, "If NPS holds a whip in one hand but says, 'This is not intended to punish,' can it really be trusted?"

On the previous day, Park Neung-hoo, Minister of Health and Welfare and Chair of the NPS Fund Management Committee, explained, "(There will be) no major changes, but in the next Fund Committee meeting, detailed expressions will be refined to increase public acceptance."

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