Listed Companies Association: "National Pension Service Lacking Political Independence, Structural Reform Needed Centered on Private Sector"

Strong Opposition to Shareholder Derivative Suit Initiative...Lack of Expertise and Independence

[Asia Economy Reporter Minwoo Lee] The Korea Listed Companies Association strongly opposed the recent active promotion by the National Pension Service (NPS) of shareholder derivative lawsuits seeking damages from directors on behalf of companies. They pointed out that due to the lack of political independence of the NPS Fund Management Committee, the committee should be reorganized to be centered on private-sector experts, and the Stewardship Responsibility Committee (hereinafter referred to as the SRC) should also be restructured as an advisory body to the Fund Management Committee.

On the 14th, the Listed Companies Association criticized that unlike major overseas pension funds, the NPS has an overwhelming influence on domestic companies, making such reorganization necessary.

The association explained, "The NPS, one of the world's top three pension funds, invests 17.9% of its approximately KRW 917 trillion assets in domestic listed companies, and holds more than 5% stakes in 272 companies. It is also the largest shareholder of major listed companies such as Naver and KT, which contrasts with overseas pension funds that either hold almost no shares in domestic companies or impose limits on individual company holdings."

They pinpointed the biggest problem with the NPS as the lack of political independence. The association expressed concern, saying, "The Fund Management Committee, the highest decision-making body of the NPS, includes six government officials such as the Minister of Health and Welfare as chairman. In addition, there are 12 members recommended by various stakeholder groups unrelated to fund management, such as farmers, fishermen, and labor unions, which raises concerns about a lack of expertise."

Concerns were also raised about the structure involving the SRC. The association criticized, "The NPS has established the SRC composed of members recommended by worker, employer, and regional subscriber groups, which makes major decisions such as exercising voting rights. The SRC, which is not responsible for fund management results, makes decisions unrelated to returns, neglecting the goal of securing long-term pension returns."

As an example of excellent management, they cited the Canadian public pension fund. The Canadian public pension fund, boasting world-class returns, carries out decision-making and stewardship responsibility activities through a separate independent organization (CPPIB) composed of 12 fund management experts from asset management firms and investment banks. The CPPIB fund management team reports only to the CPPIB board, not to the government or local authorities, and the government receives only quarterly reports from CPPIB, conducting only ex-post management and supervision.

Jae-hyuk Lee, head of policy at the Listed Companies Association, stated, "Even major overseas pension funds with secured governance independence rarely file shareholder derivative lawsuits, so the recent actions of the NPS are somewhat excessive. The Fund Management Committee should be reorganized to be centered on private fund management experts to make decisions related to stewardship responsibility, and the current SRC should be restructured as an advisory body for the Fund Management Committee’s decision-making."