Is Lee Kun-hee's 'New Management' Continued by Lee Jae-yong's 'New Samsung'?

[Asia Economy Reporter Kim Hyewon] On the 25th, with the passing of Samsung Group Chairman Lee Kun-hee, the Samsung family has officially entered a third-generation management system centered on Vice Chairman Lee Jae-yong of Samsung Electronics. The management keyword representing Chairman Lee, 'New Management,' has been succeeded by Vice Chairman Lee's 'New Samsung.'

However, since Chairman Lee suddenly collapsed over six years ago and was bedridden for a long time, he was unable to complete the share transfer to the third generation, leading to analyses that Samsung's future depends on the restructuring of the group's governance.

The Lee Jae-yong Era Officially Begins... 'New Samsung' Must Get on Track

Vice Chairman Lee has been leading the group, including Samsung Electronics, since May 2014 after his father, Chairman Lee, was hospitalized. In 2018, he was officially designated as the head of the group by the Fair Trade Commission. It appears highly likely that Vice Chairman Lee will take the chairman position in place of Chairman Lee.

Vice Chairman Lee's 'New Samsung' management approach gained focused attention during his public apology on May 6. He bowed before the public regarding various allegations surrounding the succession of management rights and repeatedly promised, "I will not rely on shortcuts or engage in ethically condemned actions. I will never break the law." At the same time, he declared both internally and externally that "I am dreaming of a new Samsung that leaps to a higher level," coining the term 'New Samsung.'

At that time, the 'New Samsung' envisioned by Vice Chairman Lee was summarized as focusing more on leading fields, boldly challenging new businesses, practicing top-level management with expertise and insight, and recruiting talent with a sense of ownership regardless of gender, academic background, or nationality.

Vice Chairman Lee emphasized, "We will continuously innovate and focus on areas where we can excel while boldly challenging new businesses. Especially for Samsung Electronics, whether by company size or the nature of the IT industry, only top-level management with expertise and insight can guarantee survival."

He added, "Samsung will continue to recruit excellent talent regardless of gender, academic background, or nationality. Those talents must work fiercely with a sense of ownership and mission and lead the business from positions more important than mine."

Challenges Pile Up: Inheritance Tax Exceeding 10 Trillion Won, Governance Restructuring, and Affiliate Separation

Vice Chairman Lee faces many challenges ahead. First, the biggest concern is who will inherit the shares held by his father, Chairman Lee: 4.18% of Samsung Electronics common stock, 0.08% of Samsung Electronics preferred stock, 0.01% of Samsung SDS, 2.86% of Samsung C&T, and 20.76% of Samsung Life Insurance. While an autonomous management system centered on the three siblings Lee Jae-yong, Lee Boo-jin, and Lee Seo-hyun is expected to continue for the time being, the direction of Chairman Lee's share inheritance could indicate the possibility of separating major Samsung Group affiliates. Governance restructuring can only proceed smoothly if the handling of Chairman Lee's shares is properly managed.

Although no immediate changes are expected, there is speculation that sibling management among the three Samsung siblings will strengthen, potentially leading to full-scale affiliate separation in the mid to long term. The second sibling, President Lee Boo-jin, currently leads Hotel Shilla, while Lee Seo-hyun, head of Samsung C&T's fashion division (formerly Cheil Industries), resigned as president at the end of 2018 and now serves as chairperson of the Samsung Welfare Foundation.

Securing funds for inheritance tax, expected to exceed 10 trillion won, is also a difficult task. According to the Financial Supervisory Service's electronic disclosure system, as of the closing price on the 23rd, Chairman Lee's stock holdings are valued at 18.2251 trillion won.

As of the end of June this year, Chairman Lee held ▲ 249,273,200 shares of Samsung Electronics (4.18%) ▲ 619,900 shares of Samsung Electronics preferred stock (0.08%) ▲ 9,701 shares of Samsung SDS (0.01%) ▲ 5,425,733 shares of Samsung C&T (2.88%) ▲ 41,519,180 shares of Samsung Life Insurance (20.76%).

Chairman Lee is the largest shareholder or a special related party of the largest shareholder in these four affiliates. All are subject to a surcharge for largest shareholders under the inheritance tax law. Therefore, the total inheritance tax on these four affiliates' shares is calculated by applying a 20% surcharge to the valuation of 18.2 trillion won, then multiplying by a 50% tax rate, and finally applying a 3% deduction for voluntary reporting, resulting in approximately 10.6 trillion won.

Heirs must pay inheritance tax proportional to the shares they inherit. The deadline for the heirs to report and pay inheritance tax is the end of April next year.

LG Group Chairman Koo Kwang-mo is also paying inheritance tax of 921.5 billion won on assets inherited from the late Chairman Koo Bon-moo using a similar method.

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