KT&G, previously known as Korea Tobacco & Ginseng, is facing pressure from Flashlight Capital and ANDA Asset Management who are pushing the company to announce bigger dividends and additional share buybacks, spin off the ginseng business, and optimize its balance sheet. The two investment firms are not working together.

ISS said investors should elect Flashlight Capital's two nominees Suk-Yong Cha and Ou-Jin Hwang and they should also back Doreen Kim, one of the three candidates suggested by ANDA.

Given "our support for the dissident's share buyback and dividend proposals, the election of three additional directors with relevant consumer, marketing, supply chain and capital allocation experience is the right path forward," ISS wrote.

ISS noted that the company's stock price has underperformed peers and has fallen more than 10% since an investor day in January.

Flashlight Capital, founded by former Carlyle Group executive Sanghyun Lee, wants the company to raise its dividend and increase the frequency of payouts to once a quarter from once a year, among other proposals. ANDA is also pushing the company to increase the size of its board to 10 members from eight.

"Shareholders have suffered for too long," Lee said in a statement, adding he is pleased that ISS recommended that investors vote for all ten of his firm's proposals.

Large investors often follow the recommendations of proxy advisory firms including ISS and its smaller rival Glass Lewis.

First Eagle Investment Management, BlackRock and Vanguard Group rank among KT&G's biggest investors. The meeting date is scheduled for March 28.

(Reporting by Svea Herbst-Bayliss;Editing by Elaine Hardcastle)

By Svea Herbst-Bayliss