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When the future of one of the most advanced economies in the world and some of the most advanced democratic successes in the world is at stake, you would not think that its pension managers would impede progress. The votes cast at the general meetings held in Seoul today indicate that they reinforce the status quo on all-powerful companies that presidents have been committed to reforming for decades.
The third largest sovereign pension fund in the world, managing a portfolio of more than $ 550 billion, the National Pension Service (NPS) of South Korea often gives the decisive vote to shareholders in government proposals. chaebolor empires of family-owned companies like Samsung and Hyundai – and by extension, the future of Korea Inc.
The NPS owns 5% to 10% of chaebol's largest subsidiaries, making it one of the most influential guarantors of South Korea's economic health. Its mandate is to preserve and increase the retirement savings of a rapidly aging population, which should enable it to better participate in strengthening the notoriously poor governance of the companies in which it has invested.
But on Friday, March 22, the NPS resumed its role as guardian of the country's scandalous chaebol by voting in favor of all of Hyundai's controversial proposals in two crucial meetings of shareholders.
In doing so, he rejected the proposals of the activist hedge fund Elliott Management. The proposals included a $ 6 billion payment request – Hyundai Motor Corp and its affiliate Hyundai Mobis are paying alarming dividends, essential components of the "Korean rebate" – as well as new directors who would control the excesses of management.
Prudent shareholders can reasonably combine their favorable votes between certain Hyundai and Elliott proposals, as recommended by the Institutional Shareholder Service (ISS) advisory group last week.
It seems less prudent to offer an unwavering and total loyalty to Hyundai, as reported by the NPS in Friday's vote. Such favorable shareholder votes pave the way for the third generation of conglomerate leaders to badume the presidency, despite poor results in business and a noticeable lack of transparency.
For decades, Korean fund managers have been reluctant to "interfere in management." Nevertheless, you thought that the NPS would have already learned its lesson.
Presidents fall, presidents do not
The last time the NPS was shown friendly to a chaebol, it triggered a series of seismic events that ended two years later, under the sign of public fury, mbadive street protests , multiple arrests and the fall of business circles and the political establishment.
In the summer of 2015, the NPS voted – in dire circumstances – in favor of a vexing merger of two Samsung affiliates that would usher in the third-generation heir to the electronics giant. Vice President Jay Y. Lee leads the group.
The proposal to merge two subsidiaries into different industries has little commercial meaning. The provident body predicted internally that he would lose money but still voted "yes" under pressure from politicians. Soft mergers between two affiliates of the same chaebol group are generally not a commercial decision, but a complex mechanism for transferring control of public enterprises to family heirs benefiting from labyrinthine ownership structures.
For her role in the scandal, the then President, Park Geun-hye, was indicted, dismissed and sentenced to twenty-four years in prison. Although the scandal was multiple, his extortion of millions of dollars from chaebol groups in exchange for political favors – such as the vote of the NPS in favor of Samsung's leadership – was the key element of his fall.
The party that has benefited from it – Lee, Samsung's third-generation heir – has been sentenced to five years in prison for corruption, embezzlement and perjury. A judge then reduced this period to two and a half years. Then, after barely a year behind bars, he was released early, although the judge confirmed part of his conviction for bribery.
The former Minister of Health and Welfare of South Korea and the NPS Investment Officer were jailed in jail in June 2017.
The NPS, beaten and shamed, has since undergone modest reforms under the new South Korean President, Moon Jae-in.
Shareholders vs. dynasties
The pension institution has adopted a promising code of stewardship based on prudent decision-making and increased transparency. One of the plans was to name and shame the stocks of the companies he invested in that would probably lose money.
So Friday, all eyes were on the NPS making the king. By voting in the interest of Hyundai's ruling dynasty, and not in the future of its fund, it was pointed out to chaebol's future leaders that the NPS was right.
Just like the historic civil wars between monarchs and their parliaments, Hyundai's heir, Vice President Chung Eui-sun, 48, needs the support of noisy shareholders who are clamoring for more control measures. severe against dynastic abuse.
The NPS has every interest in exercising its shareholder power against Hyundai. The company has been prone to waste and scandal, even though its main activities have been difficult and the national economy is showing signs of unrest.
For example, while Hyundai Motor had more than $ 12 billion in cash, in 2014 it bought a property in the upscale Gangnam district of Seoul for $ 10 billion, three times the value of the market.
This extraordinary purchase has frightened shareholders. Hyundai's stock has dropped.
The battle that took place on March 22 between Hyundai's shareholders was a testing ground, showing whether South Korea's corporate governance reforms would hold or not. Now we know the answer: probably not.
In the private sector, foreign and Korean investors are concerned that the NPS management code is self-regulating and not legally binding. They say that the reforms of the Moon administration are built on shaky legs and full of conflicting messages. After all, the Blue House reprimanded the chaebol, but also invited his heirs to prestigious presidential tours (notably in North Korea, at its summit). with North Korean leader Kim Jong Un last October). Now the NPS has clearly stated its position.
In 2018, the NPS recorded the worst losses of its 32 years of existence. He is increasingly forced to exercise his ownership authority to demand higher returns and better leadership from the companies in which he invests. Instead, the NPS indicates – again – that the chaebol's heirs have a powerful protector.
Balking and tidy up effectively with The third-generation estates instill confidence that Moon will be able to carry out the kind of reforms needed to inject innovation into South Korea's economy with a turnover of new blood and talent.
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