"Unifying the National Pension Fund Representative Lawsuit Task Force is a 'Misguided Delegation of Authority'... Causes Management Interference"

[Asia Economy Reporter Ki-min Lee] The Trustee Responsibility Committee (TRC), a review and deliberation body stipulated in the National Pension Act, deciding on shareholder derivative lawsuits instead of the Fund Management Committee (FMC), the deliberative and resolution body, has been criticized by the business and academic sectors as a 'wrong delegation of authority' and likely to cause 'excessive corporate management interference.'

It is suggested that the decision on shareholder derivative lawsuits by the National Pension Service (NPS) should remain under the Fund Management Headquarters as currently practiced, and if separate judgment is needed for exceptional cases, it should be entrusted to the legally authorized FMC, not the temporary or advisory TRC.

The Korea Employers Federation (KEF) and the Korea Listed Companies Association held a policy forum on the National Pension Service's shareholder derivative lawsuit on the 20th and expressed opposition to delegating the decision-making authority to the TRC.

Regarding the planned promotion of shareholder derivative lawsuits by the NPS starting this year, the Ministry of Health and Welfare is pushing for revisions to the National Pension Fund Trustee Responsibility Activity Guidelines, which include transferring the decision-making authority for derivative lawsuits to the TRC.

The current guidelines primarily assign the decision on derivative lawsuits to the Fund Management Headquarters and only allow the TRC to decide in cases where the Fund Management Headquarters finds it difficult to judge and requests a decision, or when more than one-third of the TRC members demand referral to the TRC. KEF explained this dual system is because the Fund Management Headquarters is a specialized institution within the NPS, whereas the TRC is an advisory body under the government-supervised FMC, composed mostly of members recommended by labor and civic groups.

In his opening remarks, Lee Dong-geun, KEF's full-time vice chairman, said, "The core of the Ministry of Health and Welfare's guideline revision is to change the decision-making body for the NPS's shareholder derivative lawsuits from a professional fund management organization within the NPS to a committee heavily skewed with members recommended by labor and civic groups." He criticized, "There is no reason to change the decision-making body for derivative lawsuits without even trying to implement the current guidelines." This is especially because among major global pension funds, the NPS is the only one under direct government influence, raising concerns about corporate management interference by labor and civic groups.

Vice Chairman Lee also pointed out that delegating the decision-making authority for derivative lawsuits to the TRC may be illegal and demanded the withdrawal of the revision. According to the National Pension Act, the TRC is a body that reviews and deliberates the FMC's resolutions in advance, so the only entity besides the Fund Management Headquarters authorized to decide on derivative lawsuits is the FMC.

Professor Choi Jun-seon, emeritus professor at Sungkyunkwan University Law School and the presenter at the forum, strongly criticized the delegation of derivative lawsuit authority to the TRC, calling the NPS's push beyond exercising voting rights to shareholder proposals or derivative lawsuits 'excessive management interference' and 'pension socialism.' He argued, "Constant attempts to interfere with management rights based on distorted trustee responsibility theories and stirring anti-business sentiment will ultimately lead to a loss of national competitiveness." He also noted that if it becomes known that derivative lawsuits have been filed against directors, it would cause international embarrassment for companies and enable various threats from foreign hedge funds.

Experts from the business and academic sectors stated that the TRC lacks expertise, independence, and accountability and is likely to make decisions based on political judgment or public opinion, making it undesirable to handle derivative lawsuits. They suggested utilizing the TRC as a purely advisory body to the FMC according to the law or proposing more effective alternatives than derivative lawsuits to practically guide corporate management.

Professor Kwak Min-hoon of Sunmoon University’s Department of Law and Police Science said, "Ultimately, the parties responsible for the results of derivative lawsuits are the company’s shareholders and the NPS subscribers, the people." He emphasized, "Establishing governance where independent experts from the government judge the NPS’s fund management and shareholder rights exercise and take responsibility for the outcomes is a priority."

Jung Woo-yong, policy vice chairman of the Listed Companies Association and a member of the NPS Trustee Responsibility Committee, proposed that trustee responsibility activities should principally be handled by the Fund Management Headquarters, with exceptional matters decided by the FMC, aligning authority with responsibility.

Professor Kim Won-sik of Konkuk University also suggested that applying the 'Wall Street Rule'?selling all shares of the invested company?is more effective than lengthy derivative lawsuits. He argued that derivative lawsuits only raise the stock price of competing companies, so more practical measures are needed.

Previously, seven economic organizations including KEF and the Listed Companies Association demanded that important matters such as procedures and decision-making bodies related to the NPS’s promotion of derivative lawsuits be clearly stipulated in law, and requested the establishment of restrictions on target cases and verification mechanisms for the practical benefits of lawsuits to prevent abusive litigation.

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