The South Korean government has excess influence over the decisions of the National Pension Service (NPS) which has been increasing stewardship responsibilities as the biggest institutional player in Korean companies in light of the general practices in developed economies, said a think tank under business lobby group Federation of Korean Industries (FKI).
For one, Korea is the only state among the members of the Organization of Economic Cooperation and Development (OECD) that has the health minister head the top decision-making body of the national pension fund, according to the Korea Economic Research Institute (KERI).
Among four nations – Poland, Finland, France and Korea – that have government officials represent the fund management committee, Korea is the only nation where the Health and Welfare Minister chairs the fund management committee.
As for voting rights, fund management committees of three countries – Korea, Portugal and Norway – can wield their own voting rights at shareholders’ meetings. Korea is different from the other two countries because their governments play an active role in creating and operating the fund, while the Korean government doesn’t participate in forming the fund.
Fund management committees of the seven countries including Denmark, Canada, Australia, New Zealand, Luxemburg, Ireland and the Netherlands exercise voting rights, but their governance is completely independent from the governments, the KERI said. Other nations such as Japan, Poland, Sweden, France and Finland have outside institutions to exercise voting rights to prevent state funds from meddling in the management of private enterprises.
In order to reduce public pension’s influence over private companies, countries like Ireland, Japan, Norway, Sweden, the Netherlands and France put a cap on state fund’s stockholding in local businesses or ban its direct exercising of voting rights, the research institute said.
While other countries work hard to raise independence of state funds, Korea is the only country that is strengthening power of the national fund by introducing the so-called stewardship code, a guideline that encourages institutional investors to be more vocal in exercising their rights, the KERI argued.
NPS is the world’s third largest pension fund with over 667.4 trillion won ($575.7 billion) in assets under management.
By Kim Yeon-joo and Choi Mira
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