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How Will Samsung’s Emergency Management System Operate amid Owner Risk?
Emergency Management
How Will Samsung’s Emergency Management System Operate amid Owner Risk?
  • By Michael Herh
  • January 20, 2017, 02:15
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Samsung Group is expected to launch an emergency management system for a considerable period of time as Samsung heir vice chairman Lee Jae-yong is extremely restricted in his radius of action.
Samsung Group is expected to launch an emergency management system for a considerable period of time as Samsung heir vice chairman Lee Jae-yong is extremely restricted in his radius of action.

 

The court rejected the application of an arrest warrant for vice chairman Lee Jae-yong of Samsung Electronics, giving Samsung a little room to breathe. But Samsung is expected to launch an emergency management system for a considerable period of time.

It is highly likely that the Samsung Group will operate in the form of collaboration between the Future Strategy Office and the Group of Affiliates’ Presidents as it will take about two to three years for the Supreme Court to make the final verdict on the case. It is forecast that vice chairman Lee, who is a suspect, will be extremely restricted in his radius of action, facing a limit in making detailed decisions.

That is why it is expected that the Group of Affiliates’ Presidents will take the lead in the management of the group. It cannot be ruled out that the Special Prosecution Team may reconsider applying for the arrest warrant for a second time or re-summon and grill vice chairman Lee. In addition, there is room for the collective prosecution of group leaders such as Choi Ji-sung, head of the Future Strategy Office (vice-chairman) and Jang Chung-ki, deputy head of the office (president).

"The current management will make decisions voluntarily until presidents and executives are reshuffled," a Samsung representative said on January 19. However, with regard to key management issues such as mergers and acquisitions (M&As) and facility investments, vice chairman Lee or the Future Strategy Office will suggest directions."

With the future of legal actions against the vice chairman and group heads still uncertain, it is likely that affiliates will manage the status quo while the top management will make decisions on major management issues.

Samsung needs to solve the problem of 'Harman Industries' right now. In the case of Harman, which was acquired for US$ 8 billion by Samsung Electronics as the largest M&A deal in the history of Korea, some shareholders are filing a class action lawsuit, claiming that Harman’s shares were sold to Samsung at lower prices. As vice chairman Lee was banned from leaving Korea and has difficulty in persuading Haman shareholders, representatives of Samsung Electronics are likely to come up with a solution.

"The Samsung Group has been based on a BOD-centric professional management system since its foundation," a Samsung spokesperson said. “However, issues that need to be okayed by vice chairman Lee such as mid- and long-term investment plans will continue to remain untouched for the time being.”

There is also a possibility that the Samsung Group may form the Samsung Group Affiliate CEO Council which was run when a special prosecutor looked into the Samsung Group for a slush fund case in 2008. At that time, Lee Kun-hee resigned as chairman of the Samsung Group and the group was briefly run by a council of the presidents of group affiliates. Two non-standing organizations, the Investment Coordination Committee and the Brand Management Committee under the council coordinated the Samsung Group’s decision-making. The following year, the Human Resources Management Committee was added so the three committees were put in place. The system was maintained for about a year and eight months until March 2010 when chairman Lee Kun-hee officially returned.