South Korea’s biggest institutional investor National Pension Service (NPS) will adopt the so-called stewardship code, a guideline that encourages institutional investors to exercise their voting rights and be more actively involved corporate management of companies they invest in, next year.

The decision is expected to persuade more local institutional investors to adopt a similar guideline, a move that should help ease the “Korea Discount” that has led listed Korean companies to underperform their global peers due to low dividend payouts and poor corporate governance.

The fund management committee of the NPS’s highest governing body of the National Pension Service Investment Management held a meeting on Friday and announced the decision to introduce the steward code after the second half of next year. A stewardship code would encourage institutional investors such as pension funds and insurers to be more actively involved in corporate management of companies they invest in by exercising voting rights and would eventually lead to higher earnings.

The NPS is joining other local institutional investors at home and abroad that have recently announced to adopt the similar guidelines. South Korea’s KB Financial Group has embarked on the process to adopt the stewardship code in September. The country’s another leading financial conglomerate Shinhan Financial Group has also taken a step to adopt it at its units including its asset management unit Shinhan Private Equity Inc. and its affiliate Shinhan BNP Paribas Asset Management.

The NPS’s latest move is expected to encourage other public funds and major private financial groups to follow suit. A majority of local institutional investors have remained reluctant to adopt the guidelines after the code was first introduced to the country by Corporate Governance Service under the umbrella of Korea Exchange in December last year.

South Korea’s sovereign fund Korea Investment Corp. (KIC) is planning to adopt the stewardship code to better manage public funds, Eun Sung-soo, chief executive of KIC, said in August.

The stewardship code was first introduced in the United Kingdom in 2010 to promote institutional investors’ active engagement in corporate asset management as stewards of companies.

The latest decision by the NPS to introduce the stewardship code is also in line with the Moon Jae-in government’s efforts to resolve elements that have undervalued Korean stocks by raising shareholder value.

Along with the stewardship code decision, the NPS fund management committee also announced to expand the role of NPS’s voting rights decision committee to oversee matters related to responsible investment and exercising stockholder rights. It also plans to create an independent permanent committee dedicated to creating a responsible investment environment by monitoring financial conditions of companies, their management environment and corporate governance, and when necessary, propose disclosed talks with the management or send open letters.

By Park Yoon-koo and Lee Eun-joo

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]