Samsung Governance 'In the Crosshairs' Bills Follow One After Another... After Park Yong-jin, Ruling Party's 'Economic Expert' Too

Lee Yong-woo, Member of the Democratic Party of Korea./Photo by Dong-joo Yoon doso7@

[Asia Economy Reporter Park Cheol-eung] Bills mandating the sale of Samsung Electronics shares held by Samsung Life Insurance, a core part of Samsung Group's governance structure, are being consecutively proposed. The rationale is that it is risky for an insurance company, which is supposed to be absolutely stable, to own affiliate stocks beyond a certain limit. If realized, this would cause a seismic shift in Samsung's governance structure. Although such bills failed to pass after controversy in the past National Assembly, this time they could gain momentum if consensus is formed within the ruling party, which holds an absolute majority of seats.

According to the National Assembly on the 22nd, Rep. Lee Yong-woo of the Democratic Party of Korea recently proposed an amendment to the Insurance Business Act that requires the total assets, equity capital, and the sum of bonds or stock holdings used to calculate insurance companies' asset management ratios to be based on the values in financial statements (market value).

The current Insurance Business Act prohibits insurance companies from holding more than 3% of their total assets in affiliate stocks or bonds. However, under the insurance supervision regulations, the denominator total assets are based on fair value (market price), while the numerator affiliate stocks and bonds are based on acquisition cost.

Rep. Lee stated, "Since the International Monetary Fund (IMF) crisis, all securities have been evaluated based on market value reflected in financial statements, but insurance companies are exceptionally using acquisition cost, which has raised concerns about fairness. The insurance sector argues that due to the nature of insurance, long-term investments make acquisition cost unavoidable, but pension funds, which also aim for long-term investments, reflect market value."

This bill is effectively targeting Samsung Life Insurance. As of the end of March, Samsung Life holds 508.15 million shares (8.51%) of Samsung Electronics, a much higher stake than Samsung C&T (5.01%) or Chairman Lee Kun-hee (4.18%). Based on acquisition cost before 1980, this is about 0.1% of Samsung Life's total assets, but if changed to market value, it jumps to over 8%, far exceeding the 3% threshold. The shares to be sold are estimated to be worth about 20 trillion won.

Considering this enormous scale, the amendment includes a provision to sell the excess shares gradually, at 20% per year over five years, rather than all at once.

Democratic Party Rep. Park Yong-jin also reintroduced a Samsung Life-related Insurance Business Act amendment in the 21st National Assembly, after proposing it in the 20th. He has been active at the forefront of chaebol reform. Additionally, Rep. Lee Yong-woo, a former COO of Korea Investment Trust Management and CEO of Kakao Bank, has joined the effort. Rep. Hong Sung-kook of the Democratic Party, known as the "salaryman myth" and former CEO of Mirae Asset Daewoo, is also listed as a co-sponsor of Lee’s bill.

Civic groups like the People's Solidarity for Participatory Democracy argued that the Financial Services Commission could change the supervisory regulations even before the law is amended, but the FSC has maintained that this issue requires legislative amendment. However, they have expressed the opinion that voluntary share sales by financial companies are necessary even before the law changes.

From Samsung’s perspective, selling Samsung Electronics shares held by Samsung Life Insurance is not easy. Since the Samsung family, including Vice Chairman Lee Jae-yong, holds relatively few Samsung Electronics shares, this could pose a threat to management control. Samsung Life effectively acts as the largest shareholder of Samsung Electronics. If Samsung Electronics’ management control is threatened, the entire Samsung Group could be destabilized.

An industry insider said, "With Samsung’s governance structure already vulnerable, if a bill related to the sale of Samsung Life’s Samsung Electronics shares passes, it could expose the management to threats."

This content was produced with the assistance of AI translation services.