(EDITORIAL from Korea Times on May 25)

Surrendering to hedge fund
Hyundai ought to improve governance overhaul plan

Hyundai Motor Group has given in to hedge fund Elliott's relentless attacks. The nation's largest automaker canceled its governance overhaul plan Monday, only a week before its annual shareholders' meeting.

Under the corporate restructuring plan, the group's auto parts supplier Hyundai Mobis was to spin off its domestic module and after-sales parts businesses and merge them with its logistics arm, Hyundai Glovis. The reshuffle was aimed to sever the group's cross-shareholding structure and simplify its governance.

The idea, however, ran into opposition from most advisory groups, here and abroad, regarding the exercise of voting rights. Faced with the increasing possibility even the National Pension Service, the second-largest shareholder in Hyundai affiliates, might not support the plan, the car conglomerate dropped it.

Hyundai's surrender is shocking, indeed. Elliott, which has an equity stake of barely more than 1 percent, easily scuttled the spinoff merger plan worked out by the owner family which can mobilize 30 percent of friendly stakes. Hyundai's efforts to repel Elliott's attack, citing the hedge fund's unethical tactic bent on only maximizing short-term windfall profits, failed to turn around public opinion.

Hyundai executives attribute the defeat to a lack of communication. At the heart of the issue, however, was fairness, not public relations. The group failed to dispel suspicions about the fairness of the share swap ratio. The plan, for instance, called for giving 79 Mobis shares and 61 Glovis shares to an investor who has 100 Mobis stocks now, which opponents said was unfair given the far greater growth potential of Mobis.

Now that even the world-class automaker has revealed its vulnerability to hedge funds' attacks, there may likely be a second or third Elliott as well as a second and third Hyundai Motor. Local industry executives may be right to call for the swift introduction of devices to protect management control of the nation's largest conglomerates.

No less important, however, is to secure fairness _ whether it is an overhaul of corporate management or governance _ which should be the most powerful weapon in protecting their management rights. There is no future for those who cannot learn from failure.
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