Shown above is the shareholders' meeting of Hyundai Motor in 2018. Courtesy of Hyundai Motor

The world’s biggest proxy firm sided with Hyundai Motor over Elliott Management in the two players’ disputes about dividend payments, which will be decided at the shareholders’ meeting on March 22.

On March 12, the International Shareholder Services (ISS) recommended against the huge one-off dividend plan proposed by Elliott, which urged Hyundai Motor and its affiliate Hyundai Mobis to dole out $6.3 billion.

The New York-based hedge fund, headed by billionaire investor Paul Singer, argued that the two Korean firms hoard unnecessarily big funds and mismanage them. The $35 billion activist fund also pressed Hyundai to name five outside directors.

Hyundai Motor flatly refused the requests, claiming that the automotive group would stick to its initial plan of paying less than $1 billion in combined dividends and not appointing any new outside directors suggested by Elliott.

The open question in determining the size of dividend is future capital requirements. The company is proposing what appears a quantum leap in distributions for 2019, though arguably it has more net cash in relative terms than most peers,” it said.

On the other hand, its underperformance and lower relative capex in the past might indicate a need to increase investments. In this respect, the company’s track record in capital allocation is not comforting, though a reconstituted board might be be able to assess the real capital needs and determine an appropriate level of returns to shareholders going forward.”

The ISS report came a few days after another big proxy advisory company Glass Lewis supported Hyundai in the two-way standoff.

Unlike Glass Lewis, however, the ISS did not completely back Hyundai _ it asked Hyundai Motor and Hyundai Mobis shareholders to elect four directors nominated by Elliott.

It endorsed John Liu and Robert MacEwen for Hyundai Motor and Robert Kruse and Rudolph von Meister for Hyundai Mobis. But it did not do so with Margaret Bilson for Hyundai Motor.

Bilson is an engineer and business leader with 30 years of experience mostly at the global aviation industry. From 2009 to 2016, she served as a senior executive at BBA Aviation.

Although the ISS did not agree with the huge one-time dividends, it took issue with capital allocation of the two companies.

“The company’s track record in capital allocation is not comforting,” the report said. “A reconstituted board might be better able to assess the real capital needs and determine an appropriate level of returns to shareholders going forward.”

In addition, the ISS recommended that shareholders vote other governance improvements put forward by Elliott like expanding the Hyundai Mobis board from nine to 11.

It remains to be seen how Hyundai would respond to the ISS report. The firm is also waiting for the report of a local advisory outfit _ the Korea Corporate Governance Service.

Early last year, opposition from Elliott prompted Hyundai to scrap its scheme to change its ownership structure. Back then, both the ISS and Glass Lewis joined Elliott to go against the Hyundai plan.

Against this backdrop, Hyundai’s Executive Vice Chairman Chung Eui-sun promised this January to finish a restructuring, which would enable him to succeed his father, Chairman Chung Mong-koo.


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