NPS will intensify shareholder engagement, new CIO says

Seo Won-joo, the new chief investment officer of the National Pension Service (NPS) of South Korea, said on Dec. 27 that the pension fund will strengthen its shareholder engagement in the corporate governance of certain companies. His remarks are raising concerns about the state-owned pension fund’s excessive intervention in the private sector.

At a press conference on Tuesday, Seo said corporates that don't have dominant stakeholders, such as KT Corp., Posco Holdings Inc. and some financial holding companies, have to increase transparency and fairness in their CEO hiring processes.

Such corporates should be further open to external candidates for CEO positions in order to select the best person for the role, the pension fund's CIO added.

"Some corporates still restrict outside professionals' applications for chief executives. Such practices limit their stakeholders' choices to approving or disapproving only one candidate," Seo stated. 

He also stressed that fair and reasonable processes for CIO elections will enhance shareholder value, including that of the NPS. The pension fund will strengthen its responsible investment and stewardship code for sustainable growth, he added.

The NPS is the largest shareholder of both KT and POSCO Holdings, owning 10.74% and 8.50% stakes, respectively. The pension fund also holds a 7.86% stake in Woori Financial Group, 8.22% in Shinhan Financial Group, 7.97% in KB Financial Group and 8.40% in Hana Financial Group. 

Seo's statement is expected to cast a shadow on Woori Financial Group President Son Tae-seung’s position. Son faced punitive action from Korea's Financial Services Commission (FSC) in November for Woori Bank’s sales of fraudulent funds, which were run by the now-defunct Lime Asset Management. 

IMPACT ON PRIVATE SECTOR'S CORPORATE GOVERNANCE

Seo's comment aligns with what NPS Chairman Kim Tae-hyun stated at a press conference on Dec. 8.

"In the absence of dominant stakeholders, some corporates persist in maintaining their existing governance structures under the current chairman’s leadership, and do not train successors. Other companies face criticism that they consider in-house, incumbent applicants first rather than outside professionals for CEO election," Kim said at the time.

"We need to set up clear and reasonable norms to address these issues," he added.

After Kim's announcement, KT CEO Ku Hyeon-mo stated he is willing to join other candidates in the mobile carrier’s next CEO election. It came as a surprise as KT's committee for screening CEO candidates had already approved Ku's qualification for a second term, which will begin in March 2023.

Seo's statement raised concerns over the government's intervention in the private sector, pension fund sources said. The NPS is commissioned by the health and welfare ministry and the minister must approve the pension fund's CIO nomination.

Also unusual were the timing of the announcement by the pension fund's new CIO, on his inauguration day, and his naming of specific companies with governance issues at a sensitive time ahead of CEO nominations early next year, the sources said. 

Write to Jun-Ho Cha and Byeong-Hwa Ryu at chacha@hankyung.com
Jihyun Kim edited this article.