April 20, 2024

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[THE INVESTOR] The top two chaebol groups in Korea -- Samsung and Hyundai Motor -- are under growing pressure to submit their voluntary ownership reform plans by the year-end deadline set by the nation’s antitrust authorities.

In May when Kim Sang-jo, a longtime shareholder activist nicknamed “chaebol sniper,” took office as head of the Fair Trade Commission, he pledged to enhance monitoring of the nation’s five largest conglomerates, urging them to come up with self-measures to streamline their complicated governing structure and better protect minority shareholders within the year.

Three others groups -- SK, LG and Lotte -- have announced some measures in recent months but there are no immediate signs that Samsung and Hyundai Motor will make any new announcements on their governing structure considering they are reeling from more urgent management and business issues at hand. 

Samsung Group appointed new CEOs at key affiliates in November -- the first major reshuffle since Vice Chairman Lee Jae-yong was imprisoned in February for his alleged role in a bribery scandal involving former President Park Geun-hye and some big conglomerates.

Samsung Electronics, the group’s crown jewel, had been leading talks on the reform plans, including setting up a holding unit, but the talks have stalled amid a prolonged leadership vacuum. According to sources, on the business side the tech unit’s Silicon Valley office is likely to play a bigger role in making key strategic decisions, especially M&A talks, possibly to replace the now defunct control tower Future Strategy Office.

In a meeting with reporters this month, the FTC head said the key to Samsung’s governing structure is the relationship between Samsung Electronics and Samsung Life Insurance, hinting at stronger prevention of manufacturing firms from owning financial companies.

Samsung’s owner family has been criticized for strengthening its control over Samsung Electronics by using their shares in other Samsung companies, especially the financial units.

As for Hyundai Motor Group, it celebrates its 50th anniversary on Dec. 29. But the auto giant reportedly decided against holding any highly publicized event, possibly due to its sluggish car sales especially in China and Chairman Chung Mong-koo’s deteriorating health. Adding to its woes, the carmaker’s wage talks with the labor union recently failed again.

Industry watchers say Hyundai is expected to set up a holding unit in the long run to resolve cross-shareholding among affiliates and strengthen the founding family’s control. But they say it would be a time and money consuming process as the plan should get approval from shareholders. The issue is also directly linked to the leadership succession of the chairman’s only son and Vice Chairman Chung Eui-son.

This year, Hyundai and Kia’s global car sales are expected to slightly exceed 7 million units -- a decline for two consecutive years.

In the meantime, SK Corp., the holding firm of SK Group, and SK Innovation, the battery and chemical unit, recently decided to adopt an electronic voting system from March next year that would allow minority investors who cannot attend a shareholders meeting to exercise their voting rights via the internet -- the first adoption by a chaebol group here. Electronic voting was also one of the campaign pledges of President Moon Jae-in.

LG Group, which has maintained a relatedly simple ownership structure across affiliates to prevent any disputes among the founding family, incorporated LG International, a privately owned trading company, in November. LG Corp., the holding firm, acquired about 25 percent stake owned by Chairman Koo Bon-moo and other family members with aims to simplify the governing structure and allow subsidiaries to focus on their respective businesses.

Lotte Groupalso established a holding firm, Lotte Corp., in October to help Chairman Shin Dong-bin solidify his leadership and boost the group’s managerial transparency. The unit, co-headed by Shin and innovation office chief Hwang Kag-gyu, has 42 affiliates under its arm. The holding firm system is expected to help eliminate more than 100 cross-shareholdings among Lotte companies overall.

By Lee Ji-yoon (jylee@heraldcorp.com)