Samsung Group’s dilemma is deepening as the South Korean government’s pressure for governance reform is intensifying.
The group needs to soft-land the succession of vice chairman Lee Jae-yong and address its complex governance structure as soon as possible. The government and the financial industry think that Samsung’s conversion into a holding company system may be a good solution to the dilemma. Accordingly, some market experts predict that the group may reverse its decision to scrap the holding company system a year ago.
Korea Fair Trade Commission chief Kim Sang-jo put pressure on Samsung on May 10, saying, “Samsung’s current governance structure is not sustainable.” This came after Financial Service Commission (FSC) Chairman Choi Jong-ku said on April 20, “Samsung needs to take voluntary action to reform its governance arrangement.”
Urging Samsung Group vice chairman Lee Jae-yong to make a quick decision, Kim referred to a report that he co-authored in 2016 when he worked for the Solidarity for Economic Reform, a progressive civic organization.
Kim noted that the report, titled “Samsung Group’s Establishment of a Holding Company: Analysis and Prospects,” analyzed all legal risk factors and sketched out execution plans for Samsung’s conversion into a holding company.
As a matter of fact, Kim was seen as presenting the report as a guideline to Samsung.
According to Kim’s report, Samsung Group’s governance reform starts with the establishment of a holding company. Under the plan, Samsung Life Insurance becomes a holding company for the group’s financial affiliates while Samsung Electronics becomes a holding company for its non-financial affiliates. After that, a unified holding company is created by merging the two holding companies.
However, Samsung officially announced in April 2017 that it would not adopt a holding company system. At that time, Samsung Electronics’ board of directors said it decided not to pursue the transition to a holding company, saying, “The move will not improve its business competitiveness and various issues will exist in the conversion process of conversion.”
Nevertheless, financial market experts say that Samsung has no choice but to reconsider the transition to a holding company. This is because the conversion into a holding company is the only way to retain vice chairman Lee’s control of the group. An analyst said, “Kim and Choi, who are well aware of Samsung’s current situation, put forward an arrangement for Samsung.”