"No Sovereign Wealth Fund for Domestic Corporate Lawsuits" Government Steps Back Amid Strong Backlash

Amendment to National Pension Representative Lawsuit
Business Community Expresses Concerns to Ministry of Health and Welfare
Fund Trusteeship Committee Influenced by Civic and Labor Groups
Concerns Over Negative Impact on Corporate Management

In 2019, a press conference was held urging the exercise of shareholder rights to oppose the reappointment of Chairman Cho Yang-ho at the three pension corporations: the National Pension Service, the Teachers' Pension, and the Government Employees Pension Service. Photo by Moon Honam munonam@

[Asia Economy Reporters Choi Dae-yeol, Lee Ki-min] On the 20th, the business community met with officials from the Ministry of Health and Welfare to strongly criticize the recently proposed amendments to the National Pension representative lawsuit system. They repeatedly argued that if the government's existing amendment is finalized, there is a risk of excessive lawsuits against companies depending on public opinion or political and social conditions. The government plans to gather opinions from various sectors, including the business community, at the National Pension Fund Management Committee scheduled for the end of next month and discuss the amendments again.

Government Reaches Out Amid Strong Corporate Backlash

Vice chairpersons from the five major economic organizations, including the Korea Employers Federation and the Korea Chamber of Commerce and Industry, met with Yang Sung-il, the first vice minister of the Ministry of Health and Welfare, to convey recent concerns from the business community regarding the National Pension shareholder representative lawsuit. This meeting was arranged at the request of the Ministry of Health and Welfare following strong opposition from companies over the recent amendments to the guidelines on fiduciary responsibility activities. Lee Dong-geun, vice chairman of the Korea Employers Federation, told reporters immediately after the meeting, "No country has a case where a pension fund sues its own domestic companies because there is no practical benefit," adding, "All business representatives present at the meeting strongly opposed it." Vice Minister Yang said, "We listened carefully to the issues raised by the business community and exchanged honest opinions."

According to the government’s amendment, the decision-making authority for representative lawsuits against directors of companies in which the pension holds shares will be vested in the Fiduciary Responsibility Committee (FRC). The Ministry of Health and Welfare cites the need to establish a timely and consistent decision-making system as the reason, but the business community criticizes that the FRC, which is merely a review and deliberation body, overriding the higher decision-making body, the Fund Management Committee, to decide on lawsuits is a ‘wrong delegation of authority.’ They argue that lawsuit decisions should be handled by the current Fund Management Headquarters of the National Pension Service, and if exceptional cases require separate judgment, it should be entrusted to the Fund Management Committee, not the FRC.

Concerns Over Business Deterioration Due to FRC Dominated by Civic and Labor Groups

There are also concerns that if the Fund Management Committee, the professional fund management organization of the National Pension, is changed to a committee dominated by members recommended by labor and civic groups, excessive intervention by these groups could disrupt corporate management. The FRC is composed of nine members, with three each recommended by labor organizations, employer organizations, and regional pension subscriber groups, and the chairperson rotates. Lee Dong-geun, vice chairman of the Korea Employers Federation, said, "The core of the guideline amendment is to change the decision-making authority for representative lawsuits from the professional fund management organization within the National Pension Service to a committee dominated by members recommended by labor and civic groups," adding, "There is no reason to change the decision-making authority for representative lawsuits without even implementing the current guidelines."

Academics also express concerns that if decision-making authority is delegated to the FRC, responsibility will become unclear, and companies caught in excessive lawsuits may suffer from deteriorating business conditions. Choi Jun-seon, emeritus professor at Sungkyunkwan University School of Law, criticized, "The National Pension pushing shareholder proposals or representative lawsuits beyond exercising voting rights is excessive management interference beyond constructive dialogue," adding, "If distorted fiduciary responsibility theories are used to continuously interfere with management and provoke anti-business sentiment, it will ultimately lead to a loss of national competitiveness."

Professor Choi said, "Justifying management interference in the name of the people while acting as shareholders with the public’s retirement funds is essentially ‘pension socialism,’" and pointed out, "The FRC is only a temporary three-year body and does not bear legal responsibility even if a sued director is acquitted," warning, "If the lawsuit becomes public, it could cause international embarrassment for the company and make it a target for foreign hedge fund attacks."

On the other hand, the government maintains that the FRC is composed of experts with over five years of experience in finance, law, and other fields and follows strict procedures, so the business community’s concerns are somewhat excessive. A Ministry of Health and Welfare official said, "We will listen to various opinions and discuss them at the Fund Management Committee scheduled for the end of February," adding, "Whether to revise the existing amendment again will be decided after internal review."

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