Governance Forum: "Doosan Bobcat's Value-Up Disclosure Rated B... Numerous Improvement Tasks"

Improvement of Executive Compensation System and Board Upgrade Needed
US Listing Preferred for M&A-Centered Growth

The Korea Corporate Governance Forum on the 18th gave a grade of B to Doosan Bobcat, which announced a 'Corporate Value Enhancement Plan,' stating, "There are traces of consideration for shareholders, but many regrets remain." While positively evaluating the fact that the value-up plan was discussed five times at the board of directors, it pointed out issues to be improved, such as a dividend payout ratio lower than average, structural deterioration of stock price valuation, improvement of the executive compensation system, and upgrading of the board of directors. Furthermore, it sharply remarked that if growth centered on mergers and acquisitions (M&A) is pursued as stated in the value-up plan, it would be better to "list on the U.S. market."

The seminar on "Institutional Improvement Measures to Expand Shareholder Rights for General Shareholders and Foreign Investors," hosted by the Korea Corporate Governance Forum, was held on the 25th at the FKI-Hankyung Conference Hall in Yeouido, Seoul. Namwoo Lee, Chairman of the Korea Corporate Governance Forum, is delivering the opening remarks. Photo by Younghan Heo

In a commentary released that day, Namwoo Lee, chairman of the Korea Corporate Governance Forum, said, "The structural decline in stock price valuation along with deteriorating profitability is a serious problem," emphasizing, "Efforts by management and the board of directors to normalize this are urgently needed."

As an example, the forum pointed out that stocks traded at a price-earnings ratio (PER) of 13 to 20 times in 2016-2017 after listing have been downgraded to 5 to 7 times last year and this year due to governance issues such as low shareholder returns. Additionally, it noted that the enterprise value to EBITDA (EV/EBITDA), a cash flow indicator, has decreased from 8 to 10 times in 2016-2017 to 3 to 4 times recently.

Despite generating free cash flow, the extremely low dividend payout ratio averaging only 23% over the past three years was also seen as a serious issue. Chairman Lee said, "Fortunately, the plan includes the concept of a shareholder return rate (40% of net profit from 2025 to 2027), a minimum dividend of 1,600 won (4% dividend yield), and a special shareholder return through a 200 billion won share repurchase and cancellation by the end of this year, which is welcome," adding, "The company emphasized that the 40% shareholder return rate is higher compared to domestic manufacturing industries, but there is still room to increase it compared to the global standard of 60-70% in overseas peers."

The forum presented three tasks for the board of directors to improve in the future. First, it said the executive compensation system should be supplemented. Chairman Lee criticized, "The salary of Vice Chairman Scott Sungchul Park is excessive in absolute terms and compared to other executives, considering the stock price decline, and lacks alignment with shareholder value," suggesting that this opportunity be used to review a long-term compensation system linked to shareholder value.

Vice Chairman Park's total salary of 3.9 billion won in 2023 was considered excessive given that Doosan Bobcat's stock price fell 12% over the past year, remained flat for three years, and has only increased by an average of 2% annually over eight years since listing.

The forum emphasized that for CEO and executive evaluation and compensation to meet global standards, long-term performance bonuses (mainly stock-based compensation) should account for more than 50% of total pay, and calculations should reflect total shareholder return, earnings per share (EPS) growth excluding exchange rate effects, and core sales growth excluding M&A effects.

Furthermore, it pointed out that foreign executives are missing from the executive status in the semi-annual report, and their compensation should also be disclosed. The Doosan Bobcat website lists a total of 12 executives as management, six of whom are foreigners. However, the executive compensation details for these individuals are not included in the semi-annual report, highlighting that compensation payments are effectively conducted in the dark.

The forum also recommended that capital allocation principles be specified. Chairman Lee said, "If long-term growth centered on M&A, as presented in the value-up plan, is pursued, listing in the U.S. is the right answer for Doosan Bobcat," expressing concern, "I wonder whether the current board can objectively evaluate M&A deals from the perspective of all shareholders. If Bobcat lists in the U.S. and raises stock price valuation, it can lead M&A using the high stock price as a weapon rather than cash."

Finally, the forum urged upgrading the board of directors to be centered on independent personnel, separating the chairman of the board from the CEO, and adopting cumulative voting. Chairman Lee said, "The series of capital transactions attempted by Doosan Group after July were completely contrary to shareholder protection," adding, "If the company implements cumulative voting as stated in its policy to protect shareholder rights and improve general meeting operations, it will help the company's long-term development and open the way for independent directors who can enhance shareholder value to be elected."