The National Pension Service (NPS) has come out against the reappointment of Cho Won-tae, president and chairman of Korean Air, as an inside director, sparking interest in the reasons behind the move.
According to the aviation industry on March 17, the NPS’s Fund Management Committee is expected to vote against the reappointment of Chairman Cho at Korean Air’s regular general meeting of shareholders scheduled for March 21. The committee revealed this stance on March 14, citing “negligence in the duty of oversight regarding actions infringing on shareholder rights” in their decision on the reappointment of Chairman Cho. For another agenda item concerning the approval of the limit on director remuneration, the committee deemed the compensation amount “excessive in light of management performance.”
Regarding the infringement of shareholder interests argued by the NPS, Korean Air’s stock price and performance have shown improvements following the announcement of the acquisition of Asiana Airlines. Since the push for the merger in November 2020, the stock price has risen by approximately 30%, recording historical highs with sales of 14.5751 trillion won and operating profits of 1.5869 trillion won.
Korean Air has also maintained a shareholder-friendly dividend policy. This year, it plans to pay a dividend of 750 won (US$0.56) per common share and 800 won per preferred share. Furthermore, the company announced that it would distribute dividends within 30% of the net income based on separate financial statements over the next three years until 2025.
This is not the first instance of discord between the NPS and Korean Air. The NPS’s Fund Management Committee opposed the reappointment of Chairman Cho in 2021 as well. At that time, the committee criticized Korean Air for neglecting its duty to monitor shareholder interests by skipping due diligence and agreeing to terms unfavorable to shareholders in the process of signing the acquisition contract with Asiana Airlines.
The NPS has opposed the reappointment of all directors involved in the decision to acquire Asiana Airlines, not just Chairman Cho. Some see this opposition to Chairman Cho’s reappointment as an extension of the NPS’s opposition to the merger between Korean Air and Asiana Airlines. On the same day, the committee voted in favor of major agenda items for POSCO Holdings, KB Financial Group, and Hana Financial Group, contrasting with its stance on Korean Air.
The choices of major proxy advisory firms differed from that of the NPS. Korea ESG Standards Authority (KCGS), Korea ESG Research Institute (Daishin Economic Research Institute), and global proxy advisory firms ISS and Glass Lewis all expressed support for the appointment of Chairman Cho. There are concerns in the aviation industry that the merger between Korean Air and Asiana Airlines, essentially led by the Industrial Bank of Korea, may face setbacks due to the NPS’s opposition.
Despite the opposition from the NPS, the proposal to reappoint Chairman Cho as an inside director is expected to pass smoothly. Although the NPS holds a 7.61% stake in Korean Air, making it the second-largest shareholder, friendly shares to Chairman Cho, including a 26.13% stake by Hanjin KAL, exceed 30%.