SEOUL -- The crucial vote Wednesday by South Korea's National Pension Service to remove the head of Korean Air Lines from the boardroom signals that the country's largest institutional investor has turned against the country's sprawling family-run conglomerates, or chaebol.
The vote has likely made Chairman Cho Yang-ho, who is also the boss of Korean Air parent Hanjin Group, the first chaebol chief to lose a board seat at an affiliate in an investor vote. He will stay on as chairman of Korean Air, a role with no involvement on the board.
According to the company, 64.1% of shareholders voted for Cho to remain on the board of directors. But that fell just short of the two-thirds supermajority he needed to secure re-election. At most other companies, an appointment needs only a simple majority to be ratified. But Korean Air set a higher bar in order to fill director seats with consensus candidates.
The pension fund's vote of its 11% stake against Cho's reappointment played a pivotal role. The turnaround by the state pension fund aligns with the reformist policies of President Moon Jae-in, who is in the hot seat as his approval rating falls and the economy falters.
The fund, which manages about 700 trillion won ($615 billion) in assets, had mostly sided with chaebol groups up to this point. In 2015, the fund emerged as an important player when Samsung Electronics proposed a merger between two group companies.
American activist fund Elliott Management waged a proxy fight against that plan, claiming that the deal undervalued a unit it was invested in. The Samsung group ultimately prevailed with the backing of the pension fund, which owns more than 9% of Samsung Electronics.
The fund explained its vote on Wednesday by saying that Korean Air's value has suffered under Cho's leadership.
The carrier's brand has been clouded by scandals surrounding Cho's family, such as the infamous "nut rage" incident in 2014, when daughter Cho Hyun-ah grounded a flight from New York because a flight attendant served macadamia nuts in a bag instead of on a plate. Cho himself was indicted last year for embezzling about 27 billion won in corporate funds.
That Korean Air shares closed 2.5% higher on Wednesday suggests that the stock market agrees with the fund's assessment. Institutional investors from the U.S. and Canada also voted against Cho.
However, some see a political dimension in the pension fund's move. "The Moon administration influenced" the vote, said a chaebol insider.
Moon came to power in 2017 with the backing of progressive citizens' groups frustrated by the concentration of wealth in the hands of chaebol. His winning campaign message was a promise to reform the conglomerates.
Last year, the National Pension Service adopted a stewardship code governing its behavior as an investor. Moon in January said the government will ask the pension fund to "fulfill its responsibility" to correct bad behavior at chaebol groups by carrying out the stewardship code. After hearing those words, citizens' groups apparently lobbied the NPS to oppose Cho's reappointment to the board.
A vote by the NPS backing Cho would likely have further eroded Moon's already declining popularity. The president's approval rating has sunk below 50%. Because of the failed summit last month in Hanoi between U.S. President Donald Trump and North Korean leader Kim Jong Un, the fate of inter-Korean relations -- the Moon administration's top priority -- has been thrown into uncertainty.
And there is little hope that the economy will buoy Moon's political fortunes in the near term. The semiconductor market, a major driver of the national economy, has been underperforming since the start of the year. Samsung Electronics has forecast a profit drop for the January-March quarter.
Last year, with the economy weakening, the presidential Blue House signaled a more cooperative stance toward the conglomerates in hopes of promoting growth. That climate has changed. Straightening out the chaebol is one way Moon can score much-needed political points.
"There may be more cases in which [the administration] will stick its nose in chaebol management," said a chaebol source.
The National Pension Service could prove influential in other cases where chaebol have come under scrutiny. The Korea Fair Trade Commission, the state antitrust watchdog, has pushed the Samsung group to cut capital ties between Samsung Electronics and Samsung Life Insurance in order to separate financial and nonfinancial capital.
Hyundai Motor, which is more than 8% owned by the pension fund, planned last year to restructure in a way designed to smooth succession from the chairman to a son. The proposal was scrapped after shareholders said the deal was too advantageous to the founding family.