The Korean Corporate Governance Forum on January 21 urged Hyundai Motor Company's board to change the acquisition structure for the remaining stake in Boston Dynamics (BD). The recommendation addresses controversy surrounding Chairman Chung Euisun's personal acquisition of a 20% BD stake approximately five years ago, which legal experts questioned as potentially providing a corporate investment opportunity to an individual. The Forum issued five recommendations focused on corporate governance compliance, including restructuring the BD stake acquisition, divesting non-core assets, and enhancing shareholder returns through preferred stock buybacks.
Forum Challenges Boston Dynamics Acquisition Structure
The Forum stated that if Chairman Chung acquires additional BD shares, the transaction could become a test case for amended commercial law provisions. The organization recommended that HMG Global, Hyundai Motor's U.S.-controlled entity, acquire the entire remaining 9.65% BD stake instead of distributing it proportionally among Hyundai Motor and its affiliates according to existing shareholding ratios.
The Forum noted that legal experts at the time of the original acquisition questioned its legitimacy under Fair Trade Act provisions prohibiting "provision of business opportunities" and Commercial Act rules against "appropriation of corporate opportunities by directors." The Fair Trade Act prohibition applies to business groups with total assets exceeding 5 trillion won and prevents directing promising business opportunities that would significantly benefit the company to specially related persons (controlling shareholders and their families) or companies they control.
Forum Recommends Asset Sales and Investment Adjustments
The Forum proposed selling HMG Global's 5% stake in Korea Zinc (valued at approximately 1 trillion won) and Hyundai Motor's 5% stake in KT (valued at approximately 700 billion won), with proceeds directed toward shareholder returns. The Forum argued that HMG Global's Korea Zinc holdings contradict the entity's stated purpose as a future business investment vehicle, while the cross-shareholding structure with KT is undesirable from a corporate governance perspective.
Regarding the Global Business Center (GBC) development project, the Forum called for reconsideration of the investment. Hyundai Motor, Kia, and Hyundai Mobis plan to invest 2 trillion won in public contributions and 5 trillion won in construction costs for the commercial building project scheduled for completion in 2031. The Forum calculated that even applying a 55% equity ratio from the bidding phase, Hyundai Motor's total GBC investment represents 10% of its 132 trillion won equity capital. The Forum stated: "Hyundai Motor is an automobile and mobility company, not a commercial real estate REIT company," urging the three Hyundai Motor Group companies to sell or securitize their GBC stakes and redirect capital to future mobility investments.
On shareholder return policy, the Forum recommended prioritizing preferred stock buybacks and cancellations. While Hyundai Motor announced in the previous year it would buy back and cancel treasury shares considering the preferred stock discount rate, actual execution showed a much higher proportion of common stock purchases. The Forum noted that Hyundai Motor's Class 2 preferred shares currently trade at approximately 47% of common stock prices, arguing that buying back and canceling preferred shares with the same amount of capital could deliver more than twice the shareholder return effect compared to common stock.
Board Composition Receives Mixed Assessment
The Forum evaluated Hyundai Motor's board composition as superior compared to other major Korean corporations. The board consists of 12 members: 5 inside directors and 7 outside directors. The Forum specifically recognized Kim Soo-yi, former Asia-Pacific Head of Canada Pension Plan Investment Board (CPPIB), and Benjamin Tan, former Portfolio Manager at Singapore's Government Investment Corporation (GIC), both appointed in March, as international financial experts.
However, the Forum stated: "There is no memory of Hyundai Motor's board playing an impressive role in enhancing shareholder value over the past 1-2 years," emphasizing that outside directors with capital allocation expertise should take more active roles.
FAQ
What did the Korean Corporate Governance Forum recommend to Hyundai Motor on January 21?
The Forum issued five recommendations including changing the Boston Dynamics acquisition structure, selling stakes in Korea Zinc and KT, reducing Global Business Center investment, and prioritizing preferred stock buybacks.
Why did the Forum challenge Chairman Chung Euisun's Boston Dynamics stake acquisition?
The Forum stated that legal experts questioned whether the Chairman's personal acquisition of a 20% BD stake approximately five years ago violated Fair Trade Act provisions prohibiting provision of business opportunities and Commercial Act rules against appropriation of corporate opportunities by directors.
How much are Hyundai Motor's Class 2 preferred shares trading relative to common stock?
Hyundai Motor's Class 2 preferred shares currently trade at approximately 47% of common stock prices, according to the Forum's statement.
