South Korea’s pension fund risks overreach in corporate governance

As South Korea enters the March shareholder meeting season, the National Pension Service has stepped up its activism, opposing a range of corporate proposals. It has resisted appointing company CEOs as inside directors and pushed back against board restructuring plans aimed at mitigating potential side effects of the upcoming Commercial Act revisions. While the pension fund says its actions protect minority shareholders and enhance corporate value, critics argue they risk destabilizing management at companies already facing significant internal and external pressures.

At last week’s shareholder meeting of Hyosung Heavy Industries, the National Pension Service opposed a company proposal to reduce the number of board directors, resulting in its rejection. The move blocked the company’s attempt to limit potential entry by activist funds ahead of the revised Commercial Act, which takes effect this fall. At an upcoming shareholder meeting of Shinhan Financial Group, the pension fund plans to vote against the reappointment of Chairman Jin Ok-dong as an inside director. This comes despite backing from foreign shareholders, who hold about 60 percent of shares, and global proxy advisory firms citing strong management performance. The pension fund cited Jin’s past involvement in the Lime Fund scandal, for which he received a minor disciplinary warning from financial authorities.

The fund maintains its actions align with the Lee Jae-myung administration’s broader goals of revitalizing the stock market and reinforcing shareholder rights. The concern, however, is that such activism may also undermine legitimate corporate efforts to defend management structures. Beginning in September, a cumulative voting system will be mandated, allowing shareholders to concentrate votes on a single candidate when electing multiple directors. Companies argue that steps to guard against activist investors seeking board seats and pushing aggressive demands are a natural and necessary response.

Questions about the National Pension Service’s governance structure have intensified scrutiny. Its lack of full independence has led some to view its positions on corporate leadership as politically influenced. The fund’s investment committee is chaired by the health and welfare minister and includes six vice ministers from other government ministries, meaning roughly one-third of its members are government officials. This differs from pension funds in advanced economies, where independent experts typically oversee operations with minimal government influence.

Holding at least a 5 percent stake in roughly one in four listed South Korean companies, the National Pension Service wields significant influence. Critics say that when such a dominant institutional investor pressures companies on governance and management practices, especially in areas with no clear-cut answers, it can complicate corporate operations. At a time of heightened volatility in domestic and global financial markets, the fund should prioritize its core mission of managing retirement assets stably while maximizing returns.