[Exclusive] NPS Steps Up Voting Rights, Casts Vote Against New Hite Jinro CEO

First Extraordinary Shareholders' Meeting Since Public Focus Management Designation
NPS Votes Against Appointment of Jang Inseop as New Inside Director
NPS Considers Opposing Approval of Financial Statements
Will the Exercise of Voting Righ

It has been confirmed that the National Pension Service (NPS) voted against the appointment of Jang Inseop as the new inside director and CEO of Hite Jinro last month. Following President Lee Jaemyung's directive to the NPS in December to "properly exercise voting rights for the stocks it holds," the NPS is actively utilizing the Stewardship Code (institutional investors' guidelines for exercising voting rights). The NPS has stated that if Hite Jinro fails to take sufficient measures to address the impairment of corporate value, it will begin by opposing the approval of financial statements and may expand to opposing all general meeting agenda items and considering additional shareholder rights actions.

According to the NPS and the retail industry on January 13, the NPS voted against the agenda item appointing Jang Inseop as inside director (CEO) at Hite Jinro's extraordinary general meeting of shareholders held on December 30. The NPS explained that this exercise of voting rights was in accordance with its "Guidelines on Fiduciary Responsibility Activities of the National Pension Fund."

Among the detailed guidelines, the section on "Appointment of Directors, Auditors, and Audit Committee Members" stipulates that if it is determined that fulfilling duties as a director is difficult due to excessive concurrent positions, opposition to the director candidate may be based on objective facts. The new CEO, Jang, concurrently serves as CEO of both Hite Jinro and Hite Jinro Holdings and also chairs the boards of directors of both companies.

However, since the holding company Hite Jinro Holdings owns 50.27% of Hite Jinro's shares, the agenda item was approved. The NPS holds a 5.0% stake in Hite Jinro. Previously, at the regular general meeting of shareholders in March 2020, the NPS also voted against the reappointment of former CEO Kim Inkyu of Hite Jinro, citing a history of impairment of corporate value and infringement of shareholder rights and interests.

The market sees the NPS’s actions since Hite Jinro was designated as a publicly-focused management company in November last year as a signal that it is applying its existing guidelines more proactively to the composition of the board and overall management accountability of the company. Although it is difficult for the NPS’s opposition to change the outcome of the general meeting due to the shareholding structure, the fact that it is formalizing issues with the companies under its management could influence the voting rights of other investors ahead of the regular general meeting season in March.

Previously, the NPS designated Hite Jinro as a non-public dialogue target company in 2020 and as a non-public focused management company in 2021. Over the past five years, the NPS has demanded voluntary improvements through non-public dialogue, but judged that sufficient measures had not been taken, and in November last year, selected Hite Jinro as a publicly-focused management company.

According to the NPS, the management procedures proceed in stages. When a problem is found, the company is first designated as a non-public dialogue target and asked to make improvements. If there is no change after a certain period, it is classified as a non-public focused management company for further management. If, after a long period of non-public dialogue and focused management, there is still no substantial improvement, it is converted to a publicly-focused management company.

The controversy surrounding Hite Jinro began with the issue of unfair support for its affiliates. The Fair Trade Commission imposed a fine of approximately 7.95 billion won on Hite Jinro in 2018 for unfairly supporting its affiliate Seoyoung ENT. This amount was recalculated to 7.06 billion won in 2023, and the related administrative lawsuit was finalized in October 2024.

An NPS official stated, "Despite a fine being imposed for unfair support of affiliates and the administrative lawsuit being finalized, the company has not sufficiently responded to the NPS’s demands for clarifying management’s responsibility and implementing measures to prevent recurrence." There is also criticism that the company’s response to shareholder demands has been defensive, given the structure in which the holding company and related parties own a majority stake.

The NPS has stated that if it determines Hite Jinro’s improvement efforts are insufficient, it may gradually strengthen its exercise of voting rights. This would start with opposing the approval of financial statements at the regular general meeting of shareholders, then expand to opposing all agenda items. If there is still no change, it does not rule out considering legal rights that can be exercised as a shareholder.

Opposing the approval of financial statements signals that shareholders do not agree with the company’s overall management over the past year. Opposing all agenda items at the general meeting is an official expression of a lack of trust in the company’s governance and management decisions. Under the Commercial Act, the exercise of shareholder rights includes requesting access to and copies of accounting books and business materials, submitting official inquiries to management, sending shareholder letters, and making shareholder proposals.

As the government has made establishing a fair market order and protecting shareholder rights a key policy direction, there are growing calls for institutional investors to play a responsible role. At a Ministry of Health and Welfare work briefing on December 16, President Lee Jaemyung directly instructed the NPS to actively exercise its 'Stewardship Code,' stating, "Wherever there is primitive and backward corporate management, there must be definite (intervention)."

An NPS official said, "Designating a company as a publicly-focused management company is not a short-term issue, but is based on the judgment that there has been no change despite continuous demands for improvement over a considerable period," adding, "Even if improvements are not achieved through non-public dialogue and focused management, we will continue the dialogue through public disclosure." The official continued, "If there is still no improvement after public disclosure, we will gradually review the rights that can be exercised as a shareholder," adding, "We will continue to fulfill our role as a shareholder."

A Hite Jinro official explained, "The company is making multifaceted efforts in the direction of further development."