On March 20, 2023, the National Pension Service (“NPS”) announced a set of proposed amendments to its Operation Regulations and Enforcement Rules thereof (the “Proposed Amendments”). The Proposed Amendments aim to establish a Healthy Governance Improvement Committee (the “Governance Improvement Committee”) within NPS Investment Management with the purpose of ensuring the faithful fulfillment of NPS’s stewardship activities.
Under the Proposed Amendments, the Governance Improvement Committee will be composed of approximately ten civil experts appointed by the NPS’s CEO, one of whom will be elected as chairman. A person is eligible to become a member of the Governance Improvement Committee if he or she qualifies as one of the following: (i) a person with at least five years of work experience in asset management of a collective investment vehicle, (ii) a person with at least five years of work experience in finance or asset management of a listed company, public company or public institution, (iii) a person with a degree in economics, business administration or investment-related area and who held a position as full-time lecturer or higher at a university, (iv) a person with a doctorate degree in economics, business administration or an investment-related area who worked at a research institute or public institution, (v) a lawyer or certified public accountant, or (vi) a person with certain expertise that the NPS’s CEO deems necessary. The term of office will be one year with the possibility of reappointment if deemed necessary by the NPS’s CEO.
The Governance Improvement Committee comprises three sub-divisions: (i) Governance Structure Improvement Division, (ii) Voting Rights Exercise Division, and (iii) Stewardship Division. The divisions will provide opinions to achieve improvement by way of (a) proposing better governance structures for companies with diversified ownership; (b) reviewing and improving the criteria for exercising voting rights; and (c) examining, advising on, and improving the implementation of the Stewardship Code. The Voting Rights Exercise Division and the Stewardship Division cover all listed companies invested by the NPS and not only those with diversified ownership. The executive secretary of the Governance Improvement Committee will be the head of Global Responsible Investment & Governance Division under NPS Investment Management, and the committee chairman will deliver each division’s discussions and reviews to the head of NPS Investment Management.
According to the press release issued by NPS on March 28, 2023, in the face of ongoing controversy over the NPS’s stewardship activities since the introduction of the Stewardship Code, the Governance Improvement Committee will be established to enhance the value of investment target companies by seeking ways to improve the governance structure and to obtain advice on the criteria for exercising voting rights by NPS as well as improving the Stewardship Code from a practical point of view. The Governance Improvement Committee will be an advisory body within NPS Investment Management and its role will not conflict with that of the Specialized Committee on Responsible Investment & Governance.
On April 3, 2023, the NPS completed the collection of opinions on the Proposed Amendments. Once the Proposed Amendments are approved by the board of directors of the NPS and the Minister of Health and Welfare, and the amendments to the NPS Operation Regulations and the Enforcement Rules thereof are finalized, the Governance Improvement Committee is expected to become fully operational.
Separately from the Special Committee on Responsible Investment & Governance supervised by the Ministry of Health and Welfare (the “MOHW”) under the National Pension Act, the newly established Governance Improvement Committee within NPS Investment Management is expected to have a substantial impact on NPS’s exercise of its shareholder rights and stewardship activities. The composition, role and activities of the Governance Improvement Committee should be monitored carefully in light of (i) responses to the NPS and institutional investors and (ii) management of general shareholders’ meetings.
