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2017-12-05 16:57
Two years ago, the National Pension Service came under fire for rubber-stamping the merger of two of Samsung Group’s flagship units, incurring losses of about 300 billion won ($275 million).

So the state pension fund operator’s decision Friday to introduce the so-called stewardship code is welcome, if belated.

The stewardship code refers to a set of principles aimed at influencing institutional investors who manage other people’s money to be active and engage in corporate governance in the interests of their clients.

As Health and Welfare Minister Park Neung-hoo said, it is a global trend to adopt the system ― introduced in the United Kingdom in 2010 after the 2008 global financial crisis ― by state pension funds to protect their investments and boost their profitability over the medium to long term.

As of Aug. 31, the NPS had stakes of 5 percent or more in 278 companies, including Samsung Electronics, SK hynix and Hyundai Motor. That means its adoption of the stewardship code will have an enormous impact on these companies’ management.

On the bright side, the NPS playing its role as a market watchdog will help enhance the businesses’ management transparency, eventually leading to an increase in corporate value and revenue growth for pensioners. It will also dissolve the “Korea discount” caused by opaque governance and meager dividend payments.

Business lobbies complain the new system will result in excessive interference in the decision-making of private companies by the state pension fund operator ― that is, the government ― which appoints its chairman of the board of directors.

These opponents cite as its example the NPS voting in favor of a board member recommended by the labor union of KB Bank last month. “The vote marked the advent of pension socialism,” the critics cried out.

Such exaggerated concerns about just one director representing labor illustrate how closed and one-sided these corporate boardrooms are, filled with executives named by management to act as only “yes men.” The participation of a union-recommended director may help prevent labor disputes and promote smoother communication.

The time has long past for the NPS, one of the three biggest pension funds in the world, to introduce the stewardship code as more than 20 industrial countries have done so already.  

 

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