Stewardship Code: 'Responsible Investment' that increases corporate value

[Stewardship Code: The Core of 'Responsible Investment' that Increases Corporate Value]

Hello, readers. This is Sky Atlas, exploring the world of economics and investment. Today, we're going to take a deep dive into the 'Stewardship Code,' an important concept that goes beyond simply trading stocks and drives a company's long-term value. Let's explore together what the Stewardship Code is, why it emerged, and what impact it is having on our society and businesses.

Stewardship Code, A Core Guide to 'Responsible Investment' for Corporations and Investors

Why is the Stewardship Code important?

After the 2008 global financial crisis, there was a growing demand for accountability from institutional investors worldwide. Reckless speculation and a fixation on short-term performance in the name of maximizing shareholder profits were cited as a cause of the collapse of the financial system. The Stewardship Code was a response to this self-reflection.

The Stewardship Code is a code of conduct that requires institutional investors, such as pension funds and asset managers, to manage their clients' assets with the 'duty of a good manager.' Its goal is to maximize investor returns by actively participating in and monitoring the decision-making processes of the companies they invest in, thereby encouraging long-term growth.

This principle of responsible investment serves as a key driver for strengthening a company's ESG (Environmental, Social, Governance) management. As institutional investors take an interest in corporate environmental issues, social responsibility, and transparent governance and exercise their voting rights, companies are forced to become more responsible in their management.

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How the Korean Stewardship Code Works and Its Ripple Effect

In South Korea, the influence of the Stewardship Code expanded significantly when the National Pension Service introduced it in 2017. The actions of the National Pension Service, the largest institutional investor in Korea, have had a major ripple effect on other asset management companies.

The main principles are as follows.

• Principle 1: Policy Disclosure: Institutional investors must establish and disclose a clear Stewardship Code policy.
• Principle 2: Prevention of Conflicts of Interest: They must manage and disclose conflicts of interest with investors.
• Principle 3: Active Engagement: They must engage in active involvement activities with the companies they invest in and report on them periodically.
• Principle 4: Exercise of Voting Rights: The details of the exercise of voting rights and the reasons for them must be disclosed in detail.

The most representative case is when the National Pension Service exercised its right to vote against the reappointment of Chairman Cho Yang-ho as an in-house director during the 'nut rage' incident at Korean Air in the past. This went beyond simple opposition, sending a powerful message that corporate executives must listen to the voices of shareholders and society. The National Pension Service's proactive shareholder activism is having a positive impact on improving the opaque governance structure of chaebol corporations and strengthening the independence of the board of directors.

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Is the Stewardship Code a Magic Wand?

Of course, the Stewardship Code is not a 'magic wand' that solves all problems. The biggest controversy is the concern of 'excessive management intervention.' Critics argue that if institutional investors become too deeply involved in management, it could interfere with a company's autonomous decision-making and degenerate into pressure for short-term stock price appreciation. In addition, there are concerns that if giant capital like the National Pension Service is influenced by politics, it could harm market fairness.

Therefore, for the Stewardship Code to function correctly according to its original purpose, the expertise and independence of institutional investors are of utmost importance. Efforts are needed to focus on a company's long-term value beyond short-term profits and to seek a path of mutual growth through constructive dialogue with the company. It is important to remember that the Stewardship Code is not just a regulation, but an important tool for creating a sustainable ecosystem in which companies and investors grow together.

Key Summary:
The Stewardship Code is a code of conduct for institutional investors to faithfully manage their clients' assets. While it has the positive effect of strengthening a company's long-term value and ESG management, it also has limitations such as excessive management intervention or political neutrality violations.

The content of this blog is for reference only for investment decisions, and investment decisions should be made under the individual's judgment and responsibility. In no case can the information in this blog be used as evidence for legal liability for investment outcomes.