The National Pension Service (NPS), the largest institutional investor in South Korea, will actively exercise a stewardship code to engage in management of Hanjin KAL Corp. and Korean Air Lines Co. This will be the first time for the NPS to exercise the stewardship code after it adopted it in July last year. It has also come six months after the NPS sent a public reprimand to Korean Air in June last year.
Investment banking (IB) and pension fund industry sources said on Jan. 7 that Lee Chan-jin, member of the National Pension Fund Management Committee and commissioner of the People's Solidarity for Participatory Democracy, asked the committee to put on the official agenda of its next meeting the issues of whether to actively exercise shareholders’ rights against Hanjin KAL and Korean Air. In this regard, the Ministry of Health and Welfare, the operator of the NPS, will hold a Fund Management Committee meeting on Jan. 18 to discuss the issue. It has also tentatively decided to hold a second meeting at the end of January and notified committee members of the meeting schedule.
Lee said it is possible to actively exercise shareholders’ rights, which can be interpreted as management participation, despite the two years of transitional provision stipulated in the code, if the fund management committee once decides to do wo.
He said, “It seems clear that the NPS should oppose the appointment of Korean Air CEO Cho Yang-ho and his family members as members of the board of directors in view of the guidelines on liability of trustee activities and exercise of shareholders’ rights. The NPS and minority shareholders have asked the company to come up with proper measures to correct illegal profit-taking practices by major shareholders, such as embezzlement and breach of duty, but the company is not responding to the request. The NPS should seek ways to prevent damage to shareholder value.”
In particular, Lee said the NPS needs to see what kind of responsibilities the Fund Management Committee is fulfilling to prevent damage to shareholder value by the owner of the company in detail. This is preliminary information to decide whether the situation requires active exercise of shareholder rights. Regarding this, he said labor and civic groups oppose the owner family of Hanjin KAL and Korean Air serving consecutive terms as board members and strongly call for exercising shareholders’ rights.
In addition, Lee asked the trustee responsibility committee to review the appropriate ranges for exercising shareholders’ rights in advance. Currently, active exercise of shareholder rights is possible only on issues the Fund Management Committee decides. He called for opinions on the exercise of proper shareholder rights among issues for the active exercise of shareholder’s rights reviewed by the committee, including appointment of non-executive directors, shareholder proposal and shareholder derivative action.