As this year's regular shareholder meeting season came to a close, the National Pension Service's exercise of voting rights appeared to become more assertive than before. In addition, the National Pension Service has overhauled the shareholder derivative suit system into an enforceable framework and plans to further strengthen its influence over portfolio companies going forward.
However, some say that this move by the National Pension Service, which puts shareholder rights and interests first, is increasingly diverging from its founding purpose of "contributing to the stability of people's lives and the promotion of welfare through pension benefits." Although the original goal of actively exercising voting rights is to raise returns through long-term share price appreciation, critics say the fund is now overly focused solely on the banner of protecting shareholder rights and interests.
At first glance, improving returns and protecting shareholder rights and interests may look synonymous, but protecting shareholder rights and interests does not always lead to higher stock prices, analysts said. While shareholder returns can lift stock prices in the short term, if they undermine a company's investment capacity or management stability, they can instead reduce corporate value over the long term.
According to the National Pension Service's Fund Management Headquarters on the 16th, during this year's regular shareholder meeting season the fund voted against 382 agenda items at 284 corporate shareholder meetings. The National Pension Service's no votes have been increasing year after year.
In particular, the items that drew the most opposition votes from the National Pension Service included not only those it has typically opposed, such as "approval of director remuneration limits" and "appointment of inside and outside directors," but also "articles of incorporation amendments" and "approval of plans to hold or dispose of treasury shares." This is seen as a result of applying the intent of the recently strengthened Commercial Act amendments more strictly.
Last year, the second amendment to the Commercial Act mandated cumulative voting for listed companies with assets of 2 trillion won or more, and under the third amendment to the Commercial Act passed by the National Assembly this year, listed companies are required to cancel treasury shares (newly acquired treasury shares within one year, and existing treasury shares within one year and six months).
Keeping pace with this legislative trend, the National Pension Service has moved to put the brakes on the practice of corporations retaining treasury shares for reasons such as defending management control or compensation. According to the Stewardship Responsibility Office, the National Pension Service said, "We opposed cases where director terms were changed to within three years without changing them all at once, because there is significant room for this to be used as a 'staggered board' system." Samsung Electronics put forward an articles amendment at this shareholder meeting to make director terms more flexible, and the National Pension Service opposed it.
The same was true at many listed-company shareholder meetings for SK hynix, Hyundai Motor, E-MART, Mirae Asset Securities and others, where the National Pension Service voted against agenda items on "approval of plans to hold or dispose of treasury shares." The fund explained, "To uphold the purpose of the Commercial Act, we opposed all articles amendments that would allow a plan to hold or dispose of treasury shares to pass every year solely with the largest shareholder's equity."
The problem is that while the National Pension Service's position aligns with protecting shareholder rights and interests, it can lead to different results for long-term stock price gains.
A representative example is the "staggered board," a tool for listed companies to defend management control. When cumulative voting is fully introduced in Aug., minority shareholders will be able to enter boards with relatively small equity stakes. While there is a positive aspect in amplifying minority voices, from a company's perspective, the risk of weakened control grows proportionally. If, in this process, even the staggered board is neutralized, critics say the company could be exposed to hostile M&A forces and the permanence of corporate value could be shaken.
The same goes for the treasury share items that the National Pension Service opposed across the board. While canceling treasury shares is positive for the stock price in the near term, using treasury shares as a means to raise necessary funds can also be a way to increase corporate value.
This dilemma at the National Pension Service becomes even clearer in individual corporate cases. For example, the fund voted against an articles amendment proposed by NH Investment & Securities to expand the limit allowing the allocation of new shares to specific parties other than shareholders from 30% to 50% of the total number of issued shares. The reason was that if new shares are concentrated on specific parties, existing shareholders' preemptive rights could be infringed and share value could be diluted.
However, NH Investment & Securities' push for that articles amendment is interpreted as a step for swift capital raising. In an environment where capital strength directly connects to investment returns, quickly attracting external funds can increase corporate value.
An official at a listed company asked, "Isn't the ultimate goal of the National Pension Service in exercising voting rights not 'strengthening shareholder rights' itself, but boosting the long-term rate of stock price gains?" The official said, "Canceling treasury shares, increasing dividends and protecting the rights and interests of ordinary shareholders all raise corporate value, but when that value conflicts with other managerial needs, consultation is necessary," adding, "If management decisions are judged mechanically by a single standard, it could actually be unfavorable to long-term investment."