Hyundai looks to placate investors with shareholder rights body

Hyundai Motor has bowed to foreign investors' requests for it to establish a board-level committee protecting outside shareholders' interests, in an attempt to placate unrest over last year's controversial $10bn land deal.

Hyundai's share price fell sharply last September when it revealed plans to invest $10bn, alongside affiliates Kia Motors and Hyundai Mobis, in land for a new headquarters in Seoul.

Unhappy investors called the deal a poor investment and evidence of the weak corporate governance that has helped drive the "Korea discount" in the country's stock market.

The carmaker said on Monday that its four independent directors would comprise a new "corporate governance and communication committee" to scrutinise major business decisions in consideration of outside investors' interests - the first such body at a major South Korean company.

One member will serve as a communication channel between outside shareholders and the board, in what Hyundai termed an effort to provide "a more friendly environment for shareholders".

The move was proposed at Hyundai's annual meeting last month by APG Asset Management, the Netherlands' biggest pension fund manager, on behalf of 20 investors including JPMorgan and Legal & General.

"I don't think this was an easy decision to make . . . we have a founding family's influence over the group, and from their point of view, they're giving up something," said Park Yoo-kyung, an investment adviser at APG.

"This is a time for them to think about how to fill the gap between Korean corporate governance standards and global standards . . . the majority of Korean companies have a controlling shareholder without a controlling stake."

Many investors saw last year's land deal as evidence of the excessive control of founding families over the boards of South Korea's chaebol conglomerates, in spite of 1998 legislation forcing companies to appoint external directors.

Hyundai's board discussed the bid - which was championed by chairman Chung Mong-koo - only twice, and was not privy to the deal value before it was agreed.

Hyundai increased its dividend for past year by 54 per cent - mitigating longstanding shareholder complaints over its stingy cash payouts - but its shares remain 19 per cent below their closing level the day before the land deal's announcement.

The stock level has not been helped by Hyundai's weaker operational performance: last week it announced a fifth consecutive quarter of net profit declines, as its market share shrinks in the key US and China markets.

"It's good that Hyundai is finally starting to listen to investors," said Lee Ji-soo, a lawyer at the Centre for Good Corporate Governance. But he argued that the committee should have been given the right to veto board decisions. "It would be meaningless if the board ignores whatever decision is made by the committee."

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