Samsung Compliance Committee Strengthens Governance Improvement... Lee Chan-hee: "A Turning Point for the National Company"

"Key Tasks of the 2nd Compliance Committee Focus on 'Human Rights, Fairness, and ESG'"

Vice Chairman Lee Jae-yong of Samsung Electronics, who was reinstated through the special pardon for Liberation Day on August 15, is greeting after finishing his statement at the Seoul Central District Court in Seocho-gu, Seoul on the 12th. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Moon Chaeseok] The Samsung Compliance Committee, an independent organization within Samsung Group, has indicated that it will develop reasonable governance improvement plans independently from the group and propose solutions. With Vice Chairman Lee Jae-yong reinstated through the Liberation Day special pardon, freeing him from restrictions on management activities, the committee plans to actively monitor related issues to accelerate the group’s governance restructuring efforts centered on Vice Chairman Lee.

According to the Compliance Committee on the 25th, the '2021 Annual Report' published the previous day designated "human rights-first fair and transparent ESG (Environment, Social, Governance)" centered management as the core task for the second-term committee.

The Compliance Committee stated, "Companies must grow through people," adding, "The human rights of both employers and workers will be equally protected and guaranteed." It continued, "For fairness to be established within a company, management must be transparent and consistent," emphasizing, "If any illegal acts occur within the company, they will be handled fairly under the same standards regardless of position or rank."

Attention is focused on governance improvement (G) among the ESG management reform measures. At the launch of the second-term committee earlier this year, "realizing ESG management through governance improvement" was selected as one of the three major promotion tasks. Previously, the first-term Compliance Committee laid the groundwork by commissioning the Korea University Corporate Governance Research Center to categorize and develop evaluation indicators for compliance risk violations by top management.

In the report, the Compliance Committee said, "The biggest interest related to Samsung is governance improvement," and added, "We will listen to diverse advice from external experts and opinions from internal members to propose reasonable solutions."

Samsung Compliance Committee 2021 Annual Report. (Source=Compliance Committee)

Earlier, at the end of last year, the Compliance Committee also commissioned Boston Consulting Group (BCG) regarding governance restructuring of key affiliates such as Samsung Electronics, Samsung C&T, and Samsung Life Insurance. Vice Chairman Lee also directly expressed his intention to forgo fourth-generation management succession.

BCG reportedly recommended restoring Samsung Group’s control tower. Although the results of BCG’s work have not been disclosed, the group is known to be conducting a full-scale review based on the findings. It is expected that consultations with the Compliance Committee will also be held to reach conclusions. Additionally, the group established a Business Risk Management (BRM) group under the Management Support Office’s Support Team in May to integrate internal and external risk management.

Lee Chan-hee, chairman of the Compliance Committee, stated, "Samsung must undergo a complete transformation once again as a company for the people," adding, "If all members comply with compliance management, Samsung can transform into the most trusted top company."

Samsung Group’s governance structure follows the chain: "Vice Chairman Lee and the controlling family → Samsung C&T → Samsung Life Insurance → Samsung Electronics." The controlling family, including Vice Chairman Lee, holds 31.9% of Samsung C&T’s shares, through which they control other affiliates. After inheriting half of the Samsung Life Insurance shares held by the late Chairman Lee Kun-hee, Vice Chairman Lee became the largest shareholder of Samsung C&T (18.13%) and the second-largest shareholder of Samsung Life Insurance (10.44%). Although Samsung Electronics shares held directly are only 1.63%, control is strengthened through Samsung C&T and Samsung Life Insurance.

The handling of Samsung Electronics shares held by Samsung Life Insurance (8.51%) is critical. If the amendment to the Insurance Business Act, commonly called the "Samsung Life Insurance Act," passes, Samsung Life Insurance would have to dispose of all shares except for 3% of total assets worth 9 trillion won, meaning the remaining 32 trillion won worth of shares must be sold. Concerns have been raised that the governance structure could become unstable as the controlling family’s shareholding in Samsung Electronics decreases.

The group is reported to have recently recruited corporate governance experts who have worked at ISS, the world’s largest proxy advisory firm, and BlackRock, the world’s largest asset manager. Regular meetings between the Compliance Committee and Vice Chairman Lee are planned. These measures are being taken to strengthen the controlling family’s management rights and manage risks.

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