April 24, 2024

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[THE INVESTOR] Amid an ongoing investigation by an independent counsel, Samsung Group and its de facto leader Lee Jae-yong appear to be preparing reform plans to address public criticism and tighten Lee’s grip on management, according to local reports and market insiders on on Feb. 9.

Earlier this week, Samsung Group officially said that it would disband the group’s future strategy office, which has long served as a control tower orchestrating Samsung affiliates. Local reports suggested that, along with the disbandment of the decades-old control tower, Samsung could announce other reform plans to turn the group’s fortunes around.

Samsung reacted similarly in 2008, when a set of reforms were announced in April, right before the prosecution wrapped up an investigation into slush funds used by Samsung Chairman Lee Kun-hee. 

This time, any coming announcement is likely to be made at the end of this month, when the independent counsel is due to complete its investigation.

Initiated by Lee Jae-yong, the chairman’s only son and heir apparent, the group could seek a generational shift in management by replacing top executives who climbed the corporate ladder under the wings of Lee’s father.

Names mentioned by industry insiders include the head and of Samsung Group’s future strategy office, Choi Ji-sung and its deputy head Chang Choong-ki. The two are also implicated in the scandal, accused of authorizing Samsung’s “donations” to Choi Soon-sil, the presidential confidante at the center of the nation’s biggest influence-peddling scandal. 

The counsel sought to arrest Lee Jae-yong last month on charges of bribery, but the court’s refused to issue a warrant for him. The special prosecutors have not decided whether to indict Choi and Chang yet. 

Rumors are also circulating that the reforms could include abolishing Samsung’s open recruitment system and the weekly meeting of Samsung CEOs, and Lee Jae-yong offering 1 trillion won ($873.4 billion) as a donation to public causes. Lee vowed, during a nationally televised parliamentary hearing in December, that he would spend money “for good causes” after discussing the matter with his siblings and mother. 

According to rumors, the reform package could also include ways to give more autonomy to Samsung affiliates so that CEOs could independently run their businesses, and nurture startups to reinforce the tech giant’s creativity and openness.

A Samsung Group official said granting more autonomy to Samsung affiliates corresponds to the group’s decision to disband the future strategy office. 

“Abolishing the future strategy office means that Samsung affiliates will no longer receive directions from the group,” said the official. “But reports on the generation shift, the vice chairman (Lee) donating 1 trillion won and stopping the recruiting of employees on a regular basis are not true.”

Meanwhile, a reform plan on splitting Samsung Electronics into holding and operating companies, appears unlikely to be discussed during a shareholders meeting in March.

According to industry insiders, US hedge fund Elliott, which suggested the plan to Samsung late last year, did not submit related documents to raise the issue at the shareholders meeting.

It had suggested the tech giant split into holding and operating companies, and list the operating unit on the Nasdaq stock exchange. 

Elliott, through its affiliates -- Blake Capital and Potter Capital – holds a 0.62 percent stake in Samsung Electronics. It strongly opposed the merger between Samsung C&T and Cheil Industries in 2015.

By Cho Chung-un/The Korea Herald (christory@heraldcorp.com)