Voting Rights
It has been found that the National Pension Service (NPS) of South Korea is currently selecting an institution to conduct a research project on the introduction of stewardship codes. The Financial Services Commission (FSC), in the meantime, is planning to release legal guidelines related to the introduction of the codes by institutional investors. The NPS is going to determine whether to bring in the codes or not late this year based on the guidelines and the result of the research project.
The stewardship codes are a set of recommendations without any legal binding force and, as such, any institutional investor bringing in some of the codes has to give a proper explanation as to why it refuses to accept the rest. In December last year, the Korea Corporate Governance Service (KCGS) released seven major principles regarding the codes, including the preparation and disclosure of voting rights policy, disclosure of the history of and reason for voting rights exercise, and preparation of internal guidelines related to the execution of activities for fulfilling fiduciary duties.
In fact, the NPS has already satisfied conditions for the introduction. The KCGS, which is responsible for running the codes in South Korea, regards an institution as having introduced the codes if it has guidelines and capabilities relating to voting rights exercise. The NPS set up its guidelines relating to the exercise of voting rights in as early as 2005 and strengthened the guidelines three years ago. Still, it has yet to be examined whether its guidelines comply with the requirements according to the codes released last year.
At present, opinions are divided as to whether the adoption of the codes by the NPS will result in a more active participation in corporate management or be limited to the satisfaction of requirements relating to the guidelines as to the exercise of voting rights. Song Min-kyung, research fellow at the KCGS, mentioned that the introduction of the codes would have a practical effect only when the NPS takes a greater part in corporate management. On the other hand, a local asset management firm recently refuted this by saying, “Institutional investors’ guidelines for preventing the appointment of certain persons as an outside director, for example, impose a significant burden on enterprises, leading to intervention in their management.”
In the meantime, local private equity fund (PEF) JKL Partners introduced the stewardship codes for the first time in the country on May 25 this year. Some other PEFs and venture capitals are looking to follow suit, too.