Robust stewardship code can foster Korea’s businesses and protect pensions > 지배구조

Implementation report with narratives and case studies

The UK Financial Reporting Council (FRC), based in the Canary Wharf business district of East London, is busiest during the months of April and October each year. This is because those months are when institutional investors such as pension funds, asset managers and insurers submit reports on their engagement with companies and how they exercised their voting rights over the past year. A team of around 15 dedicated staff at the organization, which launched the world’s first stewardship code in 2010, meticulously reads and evaluates approximately 300 reports annually — 200 in April and 100 in October.

The strict qualitative evaluation makes it difficult to get a high score by simply checking boxes of “Yes” or “No” for each item or listing activity. It requires a narrative and specific examples demonstrating what, why and how something was done, who collaborated and the results.

What drives the British system is the tension stemming from the awareness that delisting could occur at any time. Institutions that pledge code compliance submit annual reports and undergo a review of their registration status. Even the largest such investors are delisted if they do not pass the assessment.

When we met with Maureen Beresford, the FRC’s director of corporate governance and stewardship, at her London office on July 22, she said that since many asset owners (pensions and investment funds) want to work with asset managers on the list, those that fail to make the grade are aware of the risk of losing asset management contracts or funds. She called this a powerful incentive that ensures high levels of reporting and compliance with standards. 

In this way, this system has the market separate the wheat from the chaff without fines or sanctions.

Pension funds, the engines that turn these gears, mandate that asset managers to which they entrust their money act as responsible stewards, and in the process, asset managers’ performance reports and FRC evaluations are reference materials for choosing investment managers. 

Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund, has boosted the corporate governance and capital market value of Japanese companies by closely evaluating the stewardship performance of external asset managers and allocating funds on a differentiated basis, rather than entrusting its entire equity portfolio to them.

In contrast, Korea’s National Pension Service, No. 3 worldwide with 1.67 quadrillion won (over US$900 billion) in managed assets, is criticized for not effectively leveraging its influence to advance the domestic capital market. This is why some say the success or failure of reform is contingent on the pension fund’s willingness to take on a new role.

The role of professional service providers
 
Engaging with and exercising voting rights over the affairs of corporations requires expertise and expenditure. Small- to mid-sized asset managers can only exercise a limited amount of influence over companies, as they lack resources for personnel, research and legal review, as well as having limited stakes.  
 
Europe has tools that fill in those gaps: stewardship service providers and collaborative engagement — a model in which a handful of institutions work together.
 
EOS, which is affiliated with global investment manager Federated Hermes, is a world-leading stewardship service provider. On behalf of its clients, European pension funds, EOS analyses and engages with investment firms and exercises voting rights based on guidelines provided by their clients.
 
EOS advises on over US$2.4 trillion in assets, and of this amount, active management was applied to 64% of the assets in 2025. Of the 859 companies it engaged with in 2025, 73 companies included in its core program featured engagements with the CEO or chair, and EOS engaged with companies in its core program on average five times in a year.
 
The scale of its voting service is also quite formidable. Voting service was provided at 13,516 meetings and on 131,979 resolutions, with 63% of meetings featuring one or more resolutions against management.
 
Speaking at the agency’s London office on July 22, Bruce Duguid, the firm’s head of stewardship, said EOS’ 30-member team engages with 450 to 500 companies annually. He argued that if asset owners built their own stewardship teams, they would be able to cover only a small number of companies, reducing both efficiency and effectiveness.

He emphasized that owners of assets such as pension funds must manage systemic risks — including corporate governance, long-term strategy, and environmental and social issues — with a longer-term perspective than asset managers do.
 
EOS’ work extends beyond market oversight to policy advocacy. In 2025, it raised 55 policy concerns and held 181 consultations with regulators and relevant stakeholders.
 
The approach whereby pension funds retain voting rights while entrusting their execution to service providers offers an important perspective for Korea. 
 
Duguid said the arrangement allows pension funds to retain shareholder rights while outsourcing only the implementation of their stewardship policies to EOS. He added that many clients continue to delegate proxy voting to EOS even when their assets are managed by external asset managers.
 
This aligns with the fundamental principle of the UK Stewardship Code, which states that while engagement and voting services can be outsourced, responsibility cannot be transferred to others.
 
South Korea’s own National Pension Service has recently taken steps to follow in the footsteps of the Japanese public pension model by transferring the legal ownership and voting rights of its assets to asset managers while strengthening its own evaluation and oversight functions.
 
However, Korea’s background, in which a significant number of asset managers are affiliates of chaebol groups or financial holding companies, poses a major obstacle. Critics argue that transferring both assets and voting rights simultaneously without sufficient prior screening and post-evaluation would be akin to putting a fox in a chicken coop.
 
If the National Pension Service retains full control, it faces limitations in manpower and controversies over government interference; if it hands management over to an asset management firm, a conflict of interest arises because the entity being monitored and the monitor are one and the same.
 
The UK model, which separates the hand that manages the money (asset management) and the hand that casts the vote (voting services), offers an alternative. Even if assets are entrusted to a management firm tied to its parent group’s interests, engagement and voting services can be delegated to a specialized service provider. For that to happen, Korea would first need to introduce stewardship service providers like EOS.
 
Gathering scattered stakes
 
While individual stakes may be tiny, their collective influence can become impossible for conglomerates to ignore.  
The UK Investors Forum is a platform that brings together scattered shareholders to design and carry out collaborative engagement with boards of directors. It was established in 2014 by institutional investors as a nonprofit membership organization, and the combined holdings of its member firms account for 25% of the Financial Times Stock Exchange (FTSE) All Share market capitalization.
 
Victoria Sant, the forum’s managing director, said members typically engage with companies on a one-on-one basis, with collaborative engagement serving as an escalation tool when those efforts fail. She said members bring issues to the forum when companies dismiss their concerns on the grounds that their individual shareholdings are too small to warrant attention.
 
If one member company brings a request, the forum assesses whether other investors are willing to join and whether they can amass a threshold stake large enough to get the company’s attention.
 
However, if shareholders band together to pursue a common goal, they could be at risk of violating anti-trust and insider trading laws and regulations against collaborative acts.
 
After seeking legal advice, the forum establishes and strictly manages a safe harbor — a threshold beyond which activities are not considered a violation of the law.
 
Sant said member companies communicate with the forum individually and do not interact with one another. If they decide to collaborate directly during the engagement process, they must withdraw from the forum’s participation channel.

A new provision on collaborative engagement has also been added to the proposed amendment to Korea’s stewardship code. However, some have pointed out the system needs a rapid overhaul due to potential conflict with the provision on reporting stocks held in bulk (the 5% rule) under the Capital Markets Act, which places limitations on concerted action that could influence management control. 

The UK does not view routine shareholder collaboration as concerted action or the pursuit of board control. In 2024, Japan amended its Financial Instruments and Exchange Act to grant a broad exception for concerted engagement activity between institutions. These cases suggest there is a need to stipulate that routine cooperation for the appointment of minority directors or auditors is not for the purposes of influencing management or joint ownership.

Even if a system is in place, institutional investors will have different results depending on the perspective they operate from. 

The Paris-based Amundi Asset Management, Europe’s largest asset management firm, is rated world-class when it comes to quantity, quality and consistency of engagement. Amundi does not discriminate, engaging with both companies that have passive index holdings and those that hold only bonds with no associated voting rights. 

Last year, the firm voted at 10,851 shareholder meetings across 7,825 companies. Amundi submitted a vote on 99% of exercisable assets, effectively every single investment. The firm has voted against at least one motion at 68%-69% of shareholder meetings for four consecutive years, and opposed 22% of motions in total. This is a stark contrast from a “yes man” who simply acquiesces or confirms the decisions of the investing firm.

“Being consistent over a long period of time is important for engagement activity,” said Caroline Le Meaux, Amundi’s global head of ESG research, engagement and voting, when we met in her Parisian office on July 25. 

Le Meaux said she takes a patient approach and continues to engage in genuine conversations, while making feasible demands companies can accept that are largely based on successful case studies from elsewhere.

Elodie Laugel, Amundi’s chief responsible investment officer, added that ESG is not a fad, but something systematically tied to a company’s identity.

Speaking to stakeholders, the European answer was simple: A good steward never works alone. 

An evaluation agency (like FRC) tightens the market with the pressure of elimination, pensions shift that tension to asset management firm evaluations, asset management firms such as Amundi speak with companies based on long-term consistency, EOS performs the engagement by proxy, and investor forums bring together individual investors to form a critical scale. It is only when all five gears fall into place that the system gains the power to make companies move.

This is why Korea has been struggling over the past decade. None of our gears have been moving properly. 

The code merely accepts registrations, with no checks or sanctions, while systems of asset management firm engagement, delegation to professional agencies, and collective engagement are either failing to function or do not exist at all. Even the National Pension Service, the largest cog in the system, has often been spinning idly in the face of political headwinds and debate over “pension socialism.” 

What Korea needs is for all five gears to work in tandem. When the gears interlock and move together, the valuable assets and nest eggs of the Korean people will naturally grow as they should.

By Lee Bong-hyun, Hankyoreh Economy and Society Research Institute research fellow

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