[Inside Chodong] Who Is the Steward at the National Pension Service?

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Recently, the National Pension Service (NPS) expressed two opinions ahead of the domestic POSCO shareholders' meeting. This is a form of exercising the stewardship code. One was NPS Chairman Kim Taehyun pointing out issues regarding the fairness of the POSCO chairman election process and the reappointment of outside directors during a phone interview with the media. The other was the NPS Stewardship Responsibility Committee issuing a 'support' opinion after a committee resolution on the POSCO chairman appointment and outside director reappointment proposals. What are the differences between these two exercises of the stewardship code? It comes down to whether the CEO acted arbitrarily or whether the entire NPS system was in operation.

The term 'stewardship' means 'butler' in English, referring to a butler who manages household affairs on behalf of the owner in a large mansion. It is a behavioral guideline that institutional investors like the NPS should actively participate in the management of invested companies to maximize the interests of their clients (the public). It means carefully monitoring everything from board composition to management activities to prevent decisions that harm shareholder value and actively exercising shareholder rights.

Then, who, through what procedures, and in what manner should the NPS exercise its stewardship code? We examined the 'Guidelines on Stewardship Activities of the National Pension Fund Trustees' established by the NPS for exercising the stewardship code. According to the basic principles (Article 3), stewardship activities must be conducted with the purpose of increasing fund assets. Fundamentally, this clarifies that the purpose of exercising the stewardship code is to enhance the value of invested companies to improve fund management returns. Regarding the decision-making entity (Article 5), it states that the NPS conducts stewardship activities through the Investment Committee established within the Fund Management Headquarters. Since the purpose of stewardship is profitability, decision-making is assigned to the Fund Management Headquarters, which manages and grows the assets. For more complex issues (cases difficult for the Fund Management Headquarters to judge and requiring expert committee decisions), the Stewardship Responsibility Committee makes the decisions. This committee consists of members recommended by NPS subscriber organizations and related experts.

Although it may seem somewhat complicated, considering the purpose of the stewardship code, it is surprisingly simple. The NPS’s stewardship code exercise is also a means for fund management, so the Fund Management Headquarters should exercise it independently and in a way that can grow assets. Difficult decisions are made by convening the Stewardship Responsibility Committee, which has representativeness and expertise. In light of these procedural efforts and the prepared system, Chairman Kim’s stewardship code exercise in his media remarks violates the system and is an overreach. If it affects the stock price of the company concerned, it could pose legal risks as it may cause losses to the fund.

Everyone knows why procedures and systems are necessary without needing to be told. Even a CEO, if acting arbitrarily without proper procedures, can be perceived as a top-down decision transmitter or as acting selfishly. Even if Chairman Kim’s remarks were well-intentioned and fundamentally correct, they are ultimately a dangerous act that could undermine the fund management system.

The NPS fund, amounting to 1,000 trillion won, wields power capable of changing the landscape of domestic and international stock, bond, and real estate markets. It is a huge temptation to be mobilized for political or policy needs. To avoid unnecessary misunderstandings that the independent fund management system is not functioning and that the fund might be used for 'regime needs,' the operation of the NPS stewardship code must be more transparent, systematic, and independent. The 1,000 trillion won NPS fund is the hard-earned retirement money of the people and must not be used selfishly by anyone.

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