Hyundai Motor Group is striking back at U.S.-based activist fund Elliott Management Corp. which has been pressuring the Korean automotive group to change its governance structure and shareholder return policy.
Market watchers say Hyundai Motor has a greater chance of winning a proxy contest with Elliott in next week’s shareholders’ meeting by securing backing from global proxy advisory firms, including Institutional Shareholder Services Inc. (ISS). Furthermore, independent directors picked by Elliott could be involved in a conflict of interest.
ISS, the world’s largest proxy advisory firm, advised against Elliott’s demand for a large one-time dividend payout on March 12. It pointed out that a high dividend payout could make it difficult for the automaker to meet capital requirements for research and development (R&D) and investment in factories. Previously, another globally prominent proxy adviser Glass Lewis & Co. also advised against Elliott’ request. Accordingly, the world’s two largest proxy advisory companies all took Hyundai Motor Group’s side.
Hyundai Motor Group is also gaining support in South Korea. South Korea’s proxy adviser Daishin Governance Research Institute also voiced objections to Elliott’s demand for an increased dividend payout. It said, “Elliott insists that Hyundai Motor increase the dividend payout because the automaker holds excessive cashable assets. But, Hyundai Motor will not be able to afford the lavish dividend as it has promised to ramp up its R&D spending to 45 trillion won (US$39.79 billion) over the next five years.” Elliott in January had demanded dividend payouts of 21,976 won (US$19.43) per share for the automaker and 26,399 won (US$23.34) per share for Hyundai Mobis Co. It is six times greater than the dividends suggested by Hyundai Motor Group. Hyundai Motor’s labor union also criticized Elliott, saying, “Elliott showed hedge funds’ eat-and-run characteristic by demanding 4.50 trillion won (US$3.98 billion) worth of dividends from Hyundai Motor, which is in the worst financial difficulty.”
In addition, Hyundai Motor Group has raised the level of counterattack on Elliott’s recommendation of independent director candidates. ISS supported most of the candidates recommended by Elliott but the group pointed out the possibility of some of the Elliott-recommended candidates being involved in a conflict of interest. It came up with plans to revamp the board of directors. Hyundai Motor Group said, “The independent director candidates suggested by Elliott lack suitability. ISS threw its support behind some of the candidates recommended by Elliott while emphasizing diversity. It is regrettable that it has ignored serious problems such as a conflict of interest that they could cause.”
ISS favored two candidates picked by Elliott – Robert Randall MacEwen for Hyundai Motor and Robert Allen Kruse for Hyundai Mobis, according to Hyundai Motor Group. However, they are currently working at the competitors of the two Hyundai companies. MacEwen is chairman of Ballard Power Systems Inc. which develops, produces and sells hydrogen fuelcell products. Ballard Power Systems is in direct competition with Hyundai Motor, which promotes hydrogen powered electric cars as its future growth engine. If MacEwen is appointed as an independent director, Hyundai Motor’s global hydrogen economy strategy could be leaked to Ballard Power Systems. Kruse is chief technology officer (CFO) of Chinese electric car producer, Karma Automotive LLC. Hyundai Mobis is planning to expand its business relations with Karrma this year. When the candidate serves as a board member of the two companies, there is a possibility of conflict of interest.
Hyundai Motor also unveiled plans to revamp its independent directors, saying, “We operate a pool of 80 candidates for independent directors from around the world who have expertise in various fields.” This is the first time for one of South Korea’s top business groups to disclose its operation of an independent director pool. In particular, Hyundai Motor Group said, “We will make non-executive directors who are respected by the market and shareholders join the board of directors so that we can reflect interests of shareholders in management.” The groups plans to recruit independent director candidates from the global capital market for Hyundai Motor and Hyundai Mobis shareholders’ meeting on March 22 as the first step toward improving the transparency of its financial structure and the governance system. In addition, it will continuously recruit global experts in the future technology and strategy sectors, such as information and communication technology (ICT), autonomous driving and artificial intelligence (AI), as non-executive directors. Hyundai Motor Group also stressed that it would carry out the medium and long-term investment plans recently announced by Hyundai Motor and Hyundai Mobis without setbacks by forming a board of directors with a high degree of expertise in all fields. In short, the expert group secured by Hyundai Motor has a much higher level of expertise and will be a more help to grow the company than the candidates of independent directors suggested by Elliott who have a conflict of interest.
This is why this year’s shareholder meeting is quite different from the one 10 months ago. Hyundai Motor Group canceled its extraordinary general meeting in May last year after Elliott opposed to the group’s plans to improve the governance structure. At that time, Hyundai Motor Group put up the merger between Hyundai Mobis and Hyundai Glovis on the agenda of the extraordinary general meeting for governance structure. In regard, Elliott was against the issue, saying it was not a fair merger and proxy advisory companies at home and abroad, including ISS and Glass Lewis, all sided with Elliott.