In focus: Korea NPS sets an example in shareholder activism
This is a new series that will feature an in-depth look at recent developments around an asset owner in the region.
Korea's National Pension Service has embarked on a more assertive shareholder approach, as its actions in a recent top executive hiring process at a major Korean corporation shows.
On February 23, Korean telecom giant KT’s CEO Ku Hyeon-mo decided not to seek a second term after its biggest shareholders, and especially NPS, demanded a more transparent process in selecting a candidate to lead KT for the next three years.
Ku had previously expressed a strong willingness to serve a second term.
The opposition from NPS in endorsing Ku's second term was instrumental in bringing about this outcome. KT has said it will restart the CEO selection process.
NPS' more activist stance has come about after the world’s third-largest pension fund, with about W920.4 trillion ($695.7 billion) in assets under management, named a new CEO, Kim Tae-hyeon, in September 2022 as well as a new CIO, Seo Won-joo, in December 2022.
Attention is now turning to whether Ku’s departure will set off a chain reaction in other companies.
Also read: New NPS CIO ticks the right boxes
CLEAR MESSAGE
It's clear that Ku withdrew fromt the KT CEO selection process based on NPS's tough corporate governance stance.
NPS is the largest shareholder in Ku, holding a 10.13% stake in KT as of December 27 2022.
On December 28, NPS expressed disagreement with Korean telecom giant KT's decision to make its current CEO Ku Hyeon-mo as the sole candidate to be its next chief.
"KT named current chief executive Ku Hyeon-mo as the sole candidate for the next CEO election on December 28. This does not meet the basic principles for a CEO election, which include transparent and fair procedures to select a candidate," the NPS fund management unit said in a statement on December 28.
"We will consider the matter when executing our shareholders' rights," the fund management unit added in the statement, indicating it will express opposition to Ku's consecutive term at the general shareholders meeting in March 2023.
The statement is considered a first for the fund in openly expressing a view about a company's CEO recruitment.
Also read: New NPS CIO shows assertive start in challenging role
RISK OF RUNNING DRY
Seo has previously indicated that NPS will be a more active shareholder - and the KT case shown how it might go about doing that.
It remains to be seen how it ends up on investment performance under its new more activist top executives.
NPS — which is projected to run out of funds as early as 2055 — has been under scrutiny for a while. Politicians and shifting governments have used NPS as a political tool, sometimes with damaging consequences.
“Today, six of the 20 members of the NPS’ Fund Management Committee — the fund’s top decision-makers in terms of actually handling the money — are government officials,” Jeong Woo-yong, a member of the NPS’ Fiduciary Liability Committee, said at a press conference held on November 7 at the National Assembly to improve the NPS’ governance structure.
He pointed out that the fund’s key decision-making bodies consisted of “too many” government officials and lacked economic experts.
“This makes it difficult for the NPS to be free from government intervention. The previous two administrations made attempts to use the state fund for its own projects, but they should not even think of touching the state retirement plan because it’s not their money,” Jeong added.
Only time will tell if NPS' new CEO and CIO can take the pension fund in a new direction.