[Inside Chodong] National Pension Service, the 10% Public Shareholder

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[Asia Economy Reporter Park So-yeon] The public perception of the National Pension Service (NPS) is unfavorable. This is due to discussions about pursuing lawsuits against Korean companies on behalf of shareholders. Corporations and interest groups have strongly criticized this as “punitive shareholder activism against companies” and a “project to punish corporate executives.” Recently, the NPS even formed a subcommittee, functioning as a task force (TF), to discuss shareholder derivative lawsuits. Since the growth of companies is essential for increasing the pension returns to the public, why does the NPS keep trying to hold back our companies?

Samsung Electronics 8.53%, Hyundai Motor Company 8.1%, SK Hynix 9.94%, Naver 8.94%, E-mart 10.86%. These are the shareholding ratios of major domestic companies held by the NPS. In other words, through the National Pension Service, our citizens collectively own about 8-10% of the shares in major Korean companies. Healthy growth of domestic companies is essential to securing the financial soundness of the National Pension.

To properly understand what seems like a conflicting issue at first glance, it is necessary to understand the “shareholder derivative lawsuit system.” This system was not newly created by the NPS. Article 403 of the Commercial Act stipulates that if a director, who has a duty of care as a faithful manager, causes damage to the company, shareholders can hold them accountable. The NPS is considering procedural measures to actually implement this system guaranteed by current law.

The NPS is a long-term investor. It focuses on the intrinsic value of companies. When news breaks that the NPS has filed a lawsuit against a chairman or CEO of a company, the stock price may temporarily decline. However, the essence of the stock price drop is not due to the NPS’s actions or the lawsuit itself. The core issue is owner risk. That is, the stock price falls because incidents related to major shareholders or unilateral management cause damage to the company. Imagine if a chairman embezzles funds and a CEO breaches their duty, yet major shareholders silently overlook these issues without raising any concerns. Could the company’s value continue to rise sustainably?

Concerns that excessive lawsuits will stifle corporate management should also be reconsidered. For example, the NPS cannot immediately file a lawsuit just because Shin Yong-jin, Vice Chairman of Shinsegae, made an “anti-communist” remark or because an employee of Osstem Implant committed embezzlement. This is because the requirements for a shareholder derivative lawsuit are not met. To proceed with such a lawsuit, there must be illegal acts by executives, not general employees, and a clear amount of damage must be established through prior litigation. Since these lawsuits are conducted with public funds, derivative lawsuits can only be filed when the likelihood of winning is high. Therefore, the realistic possibility that the NPS will actually wield this sword against large corporations is very low. However, the mere possibility can change many things.

According to the NPS’s own investigation, as discussions about shareholder derivative lawsuits have progressed, there have been increasing cases where CEOs have restored funds secretly taken from corporate coffers. Companies have become more vigilant and initiated self-improvement activities. Making companies transparent and enabling the capital market to self-purify, encouraging domestic and foreign investors to trust and invest in our market?this is the shortcut to reaching KOSPI 5000. When the stock prices of our companies rise, the profits return to the public through the National Pension. The suppression of rights that the public shareholders rightfully deserve and the blinding of the public’s eyes by corporations and their interest groups to protect the “mood” of major shareholders must disappear.

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