Global pension funds veto more of Korean firms' agendas

Global pension funds are expanding their influence as key shareholders of major companies in South Korea. Some of the world’s largest pension funds have increasingly exercised their veto power in Korean firms' shareholder meetings over the past two years, in line with the growing importance of corporate governance.

Norway’s Norges Bank Investment Management (NBIM), the world’s largest sovereign wealth fund with around $1.5 trillion in assets under management, has nearly tripled its exercise of veto rights in recent years. The Korea Economic Daily found that in 2020, NBIM vetoed 17 of the 391 agendas at 50 Korean companies' shareholder meetings. This year, it has vetoed 48 of 391 agendas.    

The Netherlands’ PGGM, a cooperative pension fund with €291 billion ($314.4 billion) in AUM, has also proactively exercised its veto power in the last two years. The Korea Economic Daily found that PGGM in 2020 vetoed 103 of 505 shareholder meetings' agendas of some 70 Korean companies. This year, its disapproval rate reached nearly 50%, vetoing 239 out of the 497 agendas.

Some other foreign pension funds that don't disclose records of their votes, including Canada Pension Plan (CPP) and the Netherlands’ Stichting Pensioenfonds ABP (ABP), are also elevating voices as shareholders in Korean firms, The Korea Economic Daily understood.  

FOREIGN PENSION FUNDS TO INCREASE VETOES 

The global pension funds were inclined to focus on the independence of the board of directors in Korean companies. Of the 48 agendas it vetoed this year, 20 were concerned with the naming of outside directors and 12 were on appointing internal directors. Also, of the 230 agendas PGGM vetoed this year, 50 and 42 were related to appointing outside directors and internal directors, respectively.    

The two pension funds expressed their skepticism about corporate heads' appointment of internal directors. Both NBIM and PGGM disapproved all the nominations of internal directors by Hyundai Motor Group Chairman Chung Euisun earlier this year, saying that the board of directors should keep its independence. In 2020, the two pension funds vetoed Kakao Corp. Chairman Brian Kim’s appointment of internal directors for the same reason.   

NBIM also disagreed with K-pop pioneer SM Entertainment Co.’s nomination of an audit committee member candidate early this year, expressing some concern the candidate might not protect shareholders’ rights.   

PGGM vetoed some 59 agendas related to confirmation of financial statements this year. The Dutch pension fund rejected Samsung Group’s tech service unit Samsung SDS Co.’s audit report early this year, as Samsung had submitted the report only nine days before the shareholders’ meeting. The fund said Samsung didn’t give shareholders enough time to read it through although the audit report is due seven days before the shareholder meeting under Korea's commercial law.

Some Korean companies are establishing countermeasures. In March, Samsung Electronics Co. recruited Daniel Oh, the former managing director of corporate governance at Morrow Sodali, a global consultancy firm that offers comprehensive governance and shareholder services to corporate clients. Oh worked for global proxy advisory firm Institutional Shareholder Services (ISS) and was also an executive at investment management giant BlackRock. Oh, the second-highest person on Samsung Electronics’ investor relations team, is expected to prepare the Samsung Group against preemptive strikes by activist funds and draw consent from existing shareholders.

Financial industry officials say that global institutional investors will be more and more proactive in exercising their voting rights. “More investors in Korea are speaking out to enhance their shareholder rights, and foreign investors seem to be following the trend. Major shareholders and management of corporates have no other choice but to look more to the interests of shareholders,” said Korean Corporate Governance Forum Chairman Kim Kyu-shik.

Write to Sul-Gi Lee at surugi@hankyung.com
Jihyun Kim edited this article.