Korea Pension Seeks to Oust Mando CEO Following Bailout

South Korea’s National Pension Service said it will vote against the reappointment of Mando Corp.’s chief executive officer, saying he damaged shareholder interests when approving the bailout of an affiliate.

NPS, the second-biggest shareholder in Mando, will vote against CEO Shin Sa Hyeon’s reappointment tomorrow, the world’s third-largest pension fund said in an e-mailed statement. Shares of Mando, which makes auto parts, tumbled to a record low in April last year after it bought a stake in construction affiliate Halla Corp. via a third company. Halla and Mando are part of the Halla Group and share the same chairman.

NPS, whose shareholdings account for about 7 percent of South Korea’s benchmark Kospi index, said last month it plans to be more active in exercising its shareholder’s rights. As South Korea’s biggest investor, the pension fund’s move signals that Korea’s family-run businesses, known as the chaebol, will face scrutiny in their governance.

“The NPS move will force the company to run a more transparent business and play by the rules,” Suh Sung Moon, a Seoul-based analyst at Korea Investment & Securities Co., said by phone after the NPS statement. “This is inevitably good news for Mando’s investors as we see the stock rising today.”

Calls to Mando’s public relations department weren’t answered.

Mando, South Korea’s third-largest maker of car parts, rose as much as 1.9 percent in Seoul, poised for its highest close since Dec. 13.

Investors Revolt

Mando’s Halla transaction last year drew opposition from investors including Midas International Asset Management Ltd. and Truston Asset Management Co., and defied government calls for limiting cross shareholdings in family-controlled groups.

Mando bought 378.5 billion won ($355 million) of new shares in wholly owned affiliate Meister Inc., which in turn invested 338.5 billion won in the affiliate, then called Halla Engineering & Construction Corp., according to regulatory filings in April.

“We decided to exercise the right to oppose the Mando CEO reappointment as he damaged the value of company and violated shareholders’ rights,” NPS said in the e-mailed statement. “Mando’s purchase of Halla E&C’s new shares through its unit Meister was to support its struggling parent company.”

Mando Chairman Chung Mong Won, a cousin of Hyundai Motor Co. Chairman Chung Mong Koo., is the biggest shareholder in Halla with 23.6 percent, according to data compiled by Bloomberg. Meister, a wholly-owned unit of Mando, owns 15.9 percent of Halla, the data show.

NPS has a 13.4 percent stake in Mando, the fund said in the e-mailed statement. That makes it the second-largest stakeholder after Halla, the data show.

NPS’s plans to exercise its shareholder’s rights include opposing outside board member candidates with lower meeting attendance records, the fund said on Feb. 28.

Active Pension

The pension rejected about 11 percent of proposals put to shareholders by South Korean companies in 2013, according to statement released by the health ministry on Feb. 26. That compares with 7 percent in 2011.

The fund’s heft has spurred concern from the Federation of Korean Industries, a lobbying group for the chaebol, which has said the fund could be used by the government to meddle in markets.

South Korean President Park Geun Hye also pledged to limit cross shareholdings to prevent family-controlled industrial empires, known as chaebol, from practices that the International Monetary Fund has said contributed to the nation’s 1997-1999 financial crisis.

“Since Halla is the biggest shareholder of Mando, it’s unlikely that the CEO reappointment won’t go through tomorrow,” said Chae Yi Bai, a researcher at the Center for Good Corporate Governance, a Seoul-based private organization that monitors South Korean business groups. “Regardless of the outcome, today’s decision is definitely a step in the right direction and a trigger point that will hopefully lead to more investors voicing their rightful demands, moving forward.”

Before it's here, it's on the Bloomberg Terminal.