The National Pension Service has decided to actively exercise their shareholder rights to Hanjin Kal, Hanjin Group’s holding company, within a limited range. It, however, plans not to intervene management of Korean Air, one of the group’s key subsidiaries.
It is the first time for Korea's pension fund to announce intervention in managing an investee company. After a four-hours discussion on Friday, the NPS operation committee, which is the highest-level decision-making organization, decided to exercise its shareholder rights to Hanjin Kal via stewardship code.
The NPS would suggest shifts to the articles of association in a way that stipulates an immediate resignation of an executive director of Hanjin Kal in the event that he or she is sentenced to imprisonment or more severe punishment due to dereliction of duty or embezzlement. Such tweaks to the articles of association are of the lowest level of intervention in management.
The national pension fund, however, decided not to mention any higher-level management intervention, such as a proposal to dismiss an executive director or a recommendation of a non-executive director, for the time being. "Minimal level of management is required to reduce risks from ‘chaebol ownership,’" said Health and Welfare Minister Park Neung-hoo, who is leading the National Pension Fund Operation Committee.
Meanwhile, the NPS concluded that it would not actively exercise shareholder rights to Korean Air, but instead it plans to lead to improvement in management by classifying it as an object of priority control. Korean Air is subject to the so-called "10 percent rule." An investor with a share more than 10 percent shall return a trading margin of a short-term period less than six months if he or she intervenes in corporate management. The NPS is the second largest shareholder of Korean Air with a share of 11.56 percent and the third largest of Hanjin Kal with 7.34 percent.
It is expected that the decision will cause controversy as it runs against the results of the Fiduciary Duty Board’s meeting where the majority opposed an active exercise of shareholder rights due to concerns of a worsening of profits. Business leaders immediately expressed concerns. "We worry about the decision as it could impede business activity," the Federation of Korean Industries said in an official statement.
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