NPS’ shareholder meeting vetoes cast pall on its profitability

National Pension Service (NPS) of South Korea, the world's third-largest pension fund with 948.7 trillion won ($768.9 billion) in assets under management, is increasingly working against other Korean companies by exercising veto rights. It has disapproved of some agendas despite its advisory firms' recommendation of approval, with growing doubts about its profitability.

Of the shareholder meetings attended by NPS in Korea this year, some 75.1% of the other stakeholders gave the nod to 14 Kospi-listed firms' 31 agendas that NPS vetoed, The Korea Economic Daily found. Some 23.4% of shareholders, including NPS, disapproved of the 31 agendas. The remaining 1.5% abstained from voting. 

For the 31 agendas, domestic institutional investors showed a slightly higher approval rate than the shareholders as a whole. Korean institutional investors and foreign investors posted 79.6% and 78% approval rates, respectively. Foreign investors held 56.7% of the voting rights, and minority shareholders, domestic institutional investors and NPS had 28.4%, 7.7% and 7.2%, respectively.    

NPS also vetoed some agendas that its proxy advisors recommended voting for. Advisory firm Korea Corporate Governance Service (KCGS) issued disapproval recommendations for only 35.3% of the agendas that NPS has vetoed so far this year. The firm recommended voting for most of the other agendas that NPS vetoed. Another advisory firm Korea ESG Research Institute recommended disapproving only 42.1% of the agendas NPS vetoed. The six major proxy advisors, including Institutional Shareholder Services (ISS) and Glass Lewis, issued recommendations of disapproval for 36.3% of the agendas vetoed by NPS.   

The pension fund’s moves don't help its return on investment, said Lee Hyung-wan, a senior researcher at Korea Listed Companies Association (KLCA). “A stakeholder needs to have other shareholders’ consent and keep up with overall market trends for profitability. But NPS' choices are very different from those of other shareholders,” said Lee. 

NPS has voting rights that can impact nearly 100 Korean firms' businesses. The pension fund holds 5% or more shares in 98 Kospi-listed firms, according to the NPS investment arm’s disclosure for the first quarter of 2022. 

Of the 23.4% of the shareholders that exercised vetoes, foreign investors and NPS respectively make up 13.5% and 9.3%, followed by the other domestic institutional investors with 0.4% and minority stakeholders with 0.2%. Of the entire vetoes this year, NPS’s votes accounted for 39.9%.  

Write to Tae-Ho Lee at thlee@hankyung.com
Jihyun Kim edited this article.