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Taruns Part Ethics and Corporate Governance In recent years, Hyundai has boosted corporate governance at the uppermost

levels of the organization through the addition of external directors, the formation of an Ethics Committee including five external directors and two independent advisors, the formation of an Ethics Charter and Employee Code of Conduct, and the implementation of Ethical Business Practice Guidelines all of which governs our people and operations globally, including in the South Korea. We are training all Hyundai personnel in ethical business conduct and have established a Cyber Audit Office to monitor our compliance worldwide. Fair Trade With the company headquartered in South Korea, Hyundai has implemented a voluntary fair trade compliance initiative to ensure we are meeting or exceeding all trade-related government regulations. As part of this initiative, Hyundai has initiated a series of education programs to raise awareness of fair trade practices among our workforce and suppliers. Additionally, it has instituted a mechanism for reporting suspected unfair business transactions, corruption or other violations.

The Audit Committee and the External Director Candidate Recommendation Committee The Audit Committee consists of four external directors. Its duties include auditing the companys management and accounting, requesting business reports from executives, and monitoring the companys financial status. The Audit Committee can raise discussions on matters related to general shareholder meetings, directors and the BOD, and auditing issues. Internal systems to enable members' access to management information necessary for proper auditing are in place. The External Director Candidate Recommendation Committee consists of 2 internal directors and 3 external directors. All external directors are appointed after being recommended by the Recommendation Committee. Compensation for directors was capped at KRW 15 billion at the 2011 General Shareholders Meeting. Total compensation for internal and external directors from 1 January to 31 December 2011 amounted to KRW 8.83 billion. Average compensation for internal directors was KRW 2.1 billion and KRW 86 million for external directors. The Ethics Committee Hyundai Motor Company established the Ethics Committee in 2007 to improve transparency of internal transactions and to ensure ethical management of the company. Ethical management and internal transaction restrictions were further reinforced in 2012 when the Committee was reorganized as a sub-committee of the BOD. The Ethics Committee consists of three external

directors and one internal director. The chairmanship is held by an external director. Key agenda items in 2011 dealt with insider trading with subsidiaries and social contribution activities. Ethical Management 1. Introduction of Ethical Management Hyundai Corp. introduced Ethics Management at the beginning of year 2004, to build the basis for survival on its own and to seek mutual benefit of all parties involved including customers and business partners etc. by preventing moral hazard of the employees and implementing transparent, responsible, and honest management. The company organized its Ethics Management Office, with the Executive Director of the Corporate Planning & Personnel Management Office serving as the Chief Ethics Officer, and also established the Principles of Business Conduct, the Code of Conduct, and the Self-Review Questionnaire. The Questionnaire pops up from the initial windows screen every day during the first week of any month when the employees check in to the intranet system, to remind them of and draw their voluntary participation to the idea and pursuit of Ethics Management in practice. Special training and educational sessions on best practices of ethical management from leading corporations and institutions will be presented regularly to the staff. All the members of the company have submitted his or her own pledge of compliance to the various ethics codes, and those in violation will be subject to discipline by the Human Resources Committee following due examination by the Ethics Management Office.

2. Ethics Codes Description Code Principles of Business Conduct Basic principles relating to ethics management Summary of Contents 1. Principles of behavior Basic Ethics, Mission Accomplishment, Transparent Management, Drawing the line between corporate & private affairs, Sound behaviors, Promotion of pleasant workplace environment 2. Responsibility & duty of the company

to the customers, shareholders, employees, business partners, competitors, and the community Code of Conduct Practicing policy of ethics management 1. Business Development 2. Management of Accounts Receivable 3. Time Management 4. Expense Management 5. Relationship with Customers 6. Relationship between employees 7 Self-review questions

Self-Review Questionnaire

Self-review questionnaire to remind all the directors, officers & employees of Ethics Management


Puneet Khannas Part Bribery and firm operations (Hyundai executive questioned in governance probe) From an article in the WSJ, 3/30/2006: A senior Hyundai executive was questioned by prosecutors in connection with a widening bribery investigation in which he was accused of creating a 'slush fund' to pay for political favors. The article says that this incident raises questions about corporate governance at Hyundai. Wer not aware of any details of the case beyond those reported in the news, but in the absence of any other information, wer not sure how they make that jump. It seems there is a direct association between bribery of outside officials (presumably with the ends of advancing the company's interests, however unethical the means may be) and other unethical corporate actions (say poor governance and managerial malfeasance) which may hurt

the company's value? Bernardi and Vassill (2004) in a Business Ethics paper find that small deviations from ethical behavior lead to even larger deviations from ethical behavior. Participants who are likely to condone a willingness to bribe a police officer to avoid being issued a speeding ticket tend to have lax views on inappropriate behaviour of corporate executives as well. This would seem to suggest that managers who are likely to bribe officials for example, are more likely to engage in other more important types of corporate wrongdoing like managing earnings, insider trading or timing their option exercises... or maybe even largescale corporate fraud. Interesting! Other important issue is not value judgement, but data analysis: is it possible to quantify the effect of bribery by company managers of external agents (say, government officials or others who are not directly involved with a company) on firm value? Perhaps not in South Korea. South Korea prohibits Korean individuals and corporations from bribing foreign government officials. Legislation enacted in 1976 and 1977 stipulates tax penalties, fines, and even prison terms for executives of Korean companies that pay illegal bribes. Hines' 1995 NBER working paper suggests that this legislation weakened the competitive position of Korean companies vis-a-vis companies (like Hyundai) that were not bound by this rule. Governance Watch Mailbox! In view of all that happened at Hyundai in the past few years the company has started a governance watch mailbox with the intention to make things more transparent to its various stakeholders. As per this anyone can view what all things are going on in the company and what is the reason behind these thinks and can even question about various aspects which he feels is not appropriate as per the companys corporate governance strategy. Hyundai is concerned that the media's effect on companies improving their corporate governance practices may be temporary. "But it's done in an effort to show the media they're trying to improve / they've sat up and taken notice .. Does it really improve things in the long run , though ? When the spotlight's taken away from them , they may go back to the way they were ... "