April 25, 2024

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[THE INVESTOR] Taking a cue from Hyundai Motor, more conglomerates starting with Samsung have signaled that they too will streamline their corporate governance structure.

Samsung’s so-called “circular governance cord” is nothing new. In essence, the founding Samsung family runs and owns Samsung Electronics -- the biggest and most significant subsidiary -- through small stakes owned in a circular pattern among affiliates like Samsung Life, Samsung C&T and Samsung SDI. 

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Hanwha Group -- Korea’s eighth-largest conglomerate -- will also be announcing reform plans for reducing inter-affiliate business reliance soon.

In March, Hyundai Motor Group came up with a way to cut the cords between affiliates by rendering its parts manufacturer Hyundai Mobis into a de facto holding company.

Korean conglomerates are notorious for their circular governance system that they insist creates synergy. In reality, it allows affiliates to favor each another in the industry, and also let’s founder families do whatever they want through tiny, interlinking stakes throughout less-important affiliates.

New Financial Supervisory Service Gov. Kim Ki-sik is another reason why conglomerates are quick to make amends after all these years of hemming and hawing, according to industry watchers.

“It’s a make or break situation,” was how one Samsung executive put it.

From the time he was a legislator, Kim has been called a “Chaebol Sniper” of his own right. He is expected to hone local insurance laws to make sure Samsung’s insurers don’t have dominance over other affiliates.

Right now, Samsung Life is allowed to hold the amount of Samsung Electronics shares it has because the law has put a limit based on stock acquisition prices, and not the market price. Kim is expected to lobby to make this the market price, forcing Samsung Life to unload its Samsung Electronics shares.

An exact timeline of reforms at Samsung and Hanwha is yet to be confirmed. But analysts say as soon as Samsung can come up with a way to reduce the costs of the reforms, it will take action, especially now that there’s an opportunity to come out looking like the good guy after all the turmoil over its heir Lee Jae-yong.

The move would not only relieve Samsung of accusations about shady corporate governance, but also provide new assets to the affiliates selling the stakes and allow them to offer more dividends.

By Kim Ji-hyun (jemmie@heraldcorp.com)