Proponents of better corporate governance in South Korea haven't lost hope that two steps forward may yet follow a big step backward involving a 2015 vote by the country's largest pension fund on a Samsung group restructuring.
Last month, South Korean authorities indicted Moon Hyung-pyo, chairman of the National Pension Service, the country's 544.9 trillion won ($469 billion) pension system, for allegedly pressuring the fund to approve the merger of construction company Samsung C&T Corp. and Cheil Industries Inc. — effectively a group holding company.
At the time, Mr. Moon was the head of the ministry overseeing NPS.
With an 11% stake in Samsung C&T, the pension fund's backing proved decisive in a July 2015 vote that just barely garnered the two-thirds margin needed to consummate the deal.
Critics, led by New York-based activist hedge fund Elliott Management Corp., said the merger helped consolidate scion Lee Jae-yong's control of the Samsung Group at the expense of minority shareholders.
The belated blowback from the NPS vote erupted just as Morgan Stanley & Co. and State Street Global Advisors issued reports in October predicting South Korea's growing focus on governance could boost valuations there, narrowing the local stock market's hefty price-to-book discount to regional and developed market peers.
Both reports tied that discount of 30% or more, in large part, to the economic dominance in Korea of family-controlled conglomerates, or chaebol.
Proponents of greater corporate accountability on environmental, social and governance-related matters insist Korea's ESG glass can still be seen as half full — even if, in a region where national pension funds have often led the way forward, the country's local champion had arguably dropped the ball in this instance.
It's good to focus not on the event itself but on what kind of reaction it produces in terms of corporate behavior, the ripple effects on policy and other changes, said Helga Birgden, a Melbourne-based partner and global business leader, responsible investment, with Mercer Investments. “That's what's important,” she said.
Market veterans pointed to growing interest in ESG among Asia-Pacific-based pension fund heavyweights — such as Japan's $1.3 trillion Government Pension Investment Fund, Tokyo, and Taiwan's $104 billion Bureau of Labor Funds — as crucial to driving improvements in corporate governance and sustainable investment.
At a conference in Hong Kong last month, GPIF President Norihiro Takahashi said the world's largest pension fund would begin making allocations to ESG-focused Japanese equity index funds by March or April. Another GPIF executive said the capacity constraints of the index the GPIF team is working now to select will help determine the volume of its allocations.