[Inside Chodong] Establishment of National Pension Fund Improvement Committee... Can It Remain Free from Power?

The National Pension Fund reserves have surpassed 970 trillion won. Soon reaching 1,000 trillion won, the National Pension Fund wields tremendous power in the capital market. When the National Pension Fund moves, about 300 listed companies in Korea react.

It is also powerful overseas. Everyone is interested in where the money will move and how voting rights will be exercised by the National Pension Fund. This is why decision-making in fund management must be thoroughly professional, independent, and ethical.

From this perspective, there are concerns about the recent decision by the National Pension Fund to establish a "Healthy Governance Improvement Committee (Improvement Committee)" within the Fund Management Headquarters. The role of the Improvement Committee is said to include providing governance direction for companies with dispersed ownership, reviewing the appropriateness of voting rights exercise standards and making rational improvements, and monitoring and advising on the implementation of the Stewardship Code.

The National Pension Fund already has the Responsible Trustee Committee (RTC) under the Fund Management Committee, which is the highest decision-making body, performing similar roles to the Improvement Committee. In principle, voting rights related to trustee responsibilities are exercised by the Fund Headquarters, and matters that are difficult to judge or require discussion are referred to the RTC. Creating an Improvement Committee that overlaps with this seems somewhat puzzling.

Once the Improvement Committee is established, it is highly likely that difficult-to-judge agenda items will be discussed there and not forwarded to the RTC. The existence and value of the RTC, which played a checking role between power and capital, could become blurred.

This is why criticism is pouring in that the government finds the RTC, composed of external experts, inconvenient and is creating the Improvement Committee. Depending on the tendencies of the Improvement Committee members, this could lead to strengthened government control over the fund and undermine the independence of fund management.

[Image source=Reuters Yonhap News]

Because of these concerns, the selection of Improvement Committee members is important. According to the recently announced amendment, the Improvement Committee will consist of about 10 private experts appointed by the Chairperson. The authority to appoint and reappoint lies solely with the Chairperson.

The qualification requirements mention only expertise. These include people who have been engaged in asset management work at collective investment schemes for more than five years, those who have a doctorate in economics, business administration, or related fields of investment targets, and those qualified as lawyers or certified public accountants.

This structure is more susceptible to influence from power and capital than the RTC, which includes members recommended by labor and regional subscriber organizations. Since the RTC and Improvement Committee decide on shareholder rights and voting rights exercise, independence has been regarded as a crucial value to prevent interference by companies or the government in decision-making.

Along with the establishment of the Improvement Committee, the government has also begun efforts to fill the Fund Management Committee, the highest decision-making body related to the National Pension Fund management, with economic experts. This follows criticism that the Fund Management Committee is currently staffed with civil servants and labor representatives lacking sufficient expertise.

Of course, expertise is necessary for managing the National Pension Fund.

However, as important as expertise for maximizing fund returns is independence from power and capital. Without guaranteed independence throughout the entire fund management process, the enormous pension fund can become "ownerless money" coveted by power and capital.

There is a risk that the public’s retirement funds could be mobilized for political purposes, deviating from their original intent. Can an Improvement Committee composed solely of experts be free from such enormous and powerful influences? Power and capital tend to collude easily, and people are prone to temptation.

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