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NPS decides to intervene in Korean Air management

June 01,2018
The National Pension Service (NPS) has decided to use its shareholder rights to take action against the airline’s scandal-ridden owner family.

The NPS will send a public reprimand to the company demanding it find a way to resolve the current mess created by the owner family and have a face-to-face talk with the top management of the airline, according to an announcement by the Ministry of Health and Welfare, the fund operator, on Wednesday.

The NPS, the largest institutional investor in the country, is the second largest shareholder of the troubled airline, with a roughly 12.45 percent stake. If the pension fund is not happy with how Korean Air responds to its demands, it theoretically could side with other minority shareholders to call a shareholder meeting and force a change to the management of the airline.

“There have been endless reports on the Korean Air owner family’s illegal smuggling, evasion of customs tax, hiding assets abroad and so on,” a spokesperson for the NPS fund management committee said. “We hope Korean Air management comes up with a practical solution to the problems as soon as possible to ease public concerns.”

Today’s announcement marks the first time that the pension fund has ever openly expressed its will to actively exercise shareholder rights and secure the long-term profitability of its investments.

In the past, the retirement fund has been criticized for shying away from influencing the companies it has invested in, especially when it didn’t fight the controversial merger of Samsung C&T and Cheil Industries in 2015 even though its adviser, the Korea Corporate Governance Service, recommended it go against the plan.

The retirement fund’s change of stance ties in with the Moon Jae-in administration’s policy of containing the power of chaebol families by actively exercising shareholders’ rights.

The move is also aligned with the fund’s plan to adopt a stewardship code in July. The code, although not legally binding, is a set of guidelines that encourages institutional investors to disclose their engagement with the companies they invest in and the logic behind their voting activities.

Some argue that stronger involvement of a giant institutional investor like the pension fund, especially when it’s state-run, could harm the independent management of a private company in the long run. In the case of Korean Air, however, the minority shareholders and the general public have already called for the fund to step in and exercise its power over the Cho family.

Every member of the Cho family is currently fighting separate charges and allegations which began when youngest daughter Cho Hyun-min was accused in April of throwing a cup of juice at employees back in March.

On Thursday, police requested an arrest warrant for Lee Myung-hee, wife of Hanjin Group Chairman Cho Yang-ho and mother of Cho Hyun-min and her equally infamous older sister Cho Hyun-ah, on charges including assaulting and insulting employees, including the use of special violence. Special violence refers to violence involving dangerous objects - in Lee’s case pruning shears.

According to police, Lee threw pruning shears at a janitor in her residence in Pyeongchang-dong, central Seoul, for not monitoring the entrance gate. She was also caught on camera attacking employees at a hotel construction site in 2014. Police have so far secured testimony from 11 victims.

Earlier in the morning on Thursday, the prosecution raided Korean Air headquarters in Gangseo District, western Seoul in an effort to find more evidence on accusations against Hanjin Group Chairman Cho Yang-ho including dodging inheritance tax, embezzlement and breach of trust.

The family is being investigated by more than ten law enforcement agencies on accusations including smuggling, gaining unfair admission to academic institutions and giving unfair favors to affiliates.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]