Economy Sector: "The 'Ihyeonryeong-Biheonryeong' 국민연금 Representative Lawsuit Must Be Fully Reexamined"

[Asia Economy Reporter Kim Hyewon] The National Pension Service (NPS) has decided this year to file derivative lawsuits against investee companies through the Stewardship Responsibility Committee (SRC), but voices from the business community are pouring out, pointing to side effects. Even within the NPS Fund Management Headquarters, there are doubts about the expertise of the SRC and concerns that the 'litigation card' could be politically abused due to the composition of the SRC members.

According to the industry on the 11th, seven economic organizations including the Korea Listed Companies Association, the Korea Employers Federation, and the Korea Chamber of Commerce and Industry issued a joint statement the day before, urging a full review, saying, "The NPS derivative lawsuits will ultimately lead to a decline in fund returns and cause disadvantages to both the contributing citizens and shareholders."

The business community points out four major problems with the NPS derivative lawsuits. The first is the financial loss to the NPS caused by derivative lawsuits. As legal firm appointments, upfront payments, and management costs until the conclusion of lawsuits increase, the financial pressure on the NPS grows, while the likelihood of winning is not high, and even if they win, the structure is not such that the NPS benefits.

From the perspective of the contributing citizens, with the pension depletion point advancing to 2057 due to low birth rates and aging, indiscriminate litigation could cause fund losses. From the shareholders' perspective, if the stock value of target companies falls due to premature derivative lawsuits by the NPS, it is highly likely to lead to damage to minority shareholders. There is also no institutional mechanism to hold companies accountable for damages if the fund loses the derivative lawsuit.

Another issue is the excessive exercise of shareholder rights using citizens' retirement funds. Considering the influence of the NPS on the capital market, the NPS can realize sufficient shareholder rights through its current voting rights exercise and corporate engagement. The NPS's voting rights exercises have been increasing, with 2,899 cases in 2017, 2,864 in 2018, 3,289 in 2019, and 3,397 in 2020. However, over the past five years, the average rate of actual rejection despite the NPS exercising opposing voting rights is only 2.4%, indicating that the SRC's decisions on voting directions often contradict the overall shareholders' intentions.

There is also concern that, like in the United States, derivative lawsuits could become a tool for hedge funds' threatening lawsuits. In the U.S., derivative lawsuits are mainly used by hedge funds as leverage to pressure companies into settlements during litigation rather than aiming for final victory. An executive from one of the four major conglomerates said, "It is hard to find precedents where a sovereign wealth fund responsible for citizens' retirement funds files lawsuits against domestic companies," adding, "Ambiguous derivative lawsuits could make every corporate decision subject to litigation, and small and medium-sized enterprises are no exception."

Within the business community and the NPS, there are criticisms about the lack of expertise of the SRC. Currently, the NPS SRC consists of nine members, including Chairman Won Jonghyun recommended by labor organizations, three from labor organizations, three from employer organizations, and three from regional subscriber organizations. An NPS official said, "There are doubts about whether the SRC, which can file derivative lawsuits, can guarantee professional knowledge and remain neutral on political issues," adding, "If the SRC makes an unfair decision to file a lawsuit, there is no internal mechanism to check it."

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