Semiconductor Super-Gap and Governance Restructuring... The 'New Samsung' Challenges JY Faces

Rapid Progress in Business Normalization Scenario
Acceleration of New Growth Engine Development... Possibility of Revival of Integrated Control Tower

[Asia Economy Reporters Han Yeju and Kim Pyeonghwa] The promotion of Samsung Electronics Vice Chairman Lee Jae-yong to chairman is interpreted as a decision made urgently to determine the future direction quickly amid an unpredictable global management crisis and the urgent need to normalize the group’s management. If Vice Chairman Lee takes the lead at the forefront of the group, it is expected that he will actively present concrete strategies to realize the 'New Samsung' vision and also play the role of a private diplomat based on his strong overseas global network. Since the late Chairman Lee Kun-hee collapsed, Lee has overseen the group’s management, but due to the political scandal, he was unable to conduct normal management activities. This promotion is seen as a starting point for a full-fledged test of his leadership.

◆JY’s 'New Samsung' and the Piling Challenges=Initially, business circles speculated that Lee’s inauguration as chairman might take place on November 1, Samsung Electronics’ founding anniversary, December 1, when his father assumed the chairman position, or March 22, Samsung Group’s founding anniversary. The decision to fix the date on November 1 is interpreted as reflecting the judgment that the rapidly evolving global situation requires a swift response.

In fact, right after returning from a business trip to the U.S. and Canada last November, Lee said, "Having directly witnessed the voices from the field and the harsh realities of the market, my heart feels heavy."

Accordingly, a large-scale organizational reshuffle, including the Samsung Electronics executive reshuffle usually held in early December, is expected to take place immediately after his inauguration. Although only about a month remains, it is anticipated that the group will quickly reorganize internally and make rapid decisions to design the future.

The group’s control tower is also expected to be reorganized into an organization supporting the chairman. In February 2017, Samsung abolished the Future Strategy Office (FSO), which was the group’s control tower, and currently operates three task forces (TFs) divided by business sectors: business support (Samsung Electronics), financial competitiveness enhancement (Samsung Life Insurance), and EPC (engineering, procurement, and construction) competitiveness strengthening (Samsung C&T). If these three TFs are integrated into a single control tower, a triangular system composed of owner management (Vice Chairman Lee Jae-yong), professional managers, and the control tower will be completed, enabling Samsung’s characteristic strengths of agility and proactive investment, according to business circles.

There are also calls for a consolidated organizational operation plan where the executives, who had focused on independent management after the absence of the group head, unite as collective intelligence to assist Vice Chairman Lee. There is speculation that the regular Wednesday executive meetings might be reactivated.

Samsung plans not only to maintain its super-gap in core businesses such as semiconductors but also to quell market concerns and foster new growth engines through large-scale investments and mergers and acquisitions (M&A). Since Vice Chairman Lee began facing judicial risks in 2017, Samsung Electronics’ M&A activities have stalled, with the acquisition of U.S. company Harman in 2016 being the last. Lee is also expected to personally oversee the group’s announced plan in May to invest 450 trillion won and hire 80,000 new employees.

◆Acceleration of Governance Restructuring Expected=Lee is also expected to accelerate the long-considered restructuring of Samsung’s governance. Since 2013, Samsung has been pursuing governance restructuring but postponed related work after Lee was sentenced to prison. Currently, Samsung’s governance structure follows the chain: 'Owner family including Vice Chairman Lee → Samsung C&T → Samsung Life Insurance → Samsung Electronics.' If regulations such as the amendment to the Insurance Business Act, currently pending in the National Assembly, strengthen the separation of finance and industry, it could pose a risk to Lee’s control over the group due to Samsung Life Insurance’s 8.51% stake in Samsung Electronics.

In the longer term, Lee is expected to work on 'restructuring the group system without 4th generation succession.' In May 2020, Lee declared publicly that he would not pass on management rights to his children. Accordingly, there is speculation that governance restructuring centered on the boards of each affiliate may be pursued.

However, since Lee’s judicial risks have not been completely resolved, there may be limitations on his activities. He is currently attending court every Thursday for allegations related to the unfair merger of Cheil Industries and Samsung C&T, and every third Friday for allegations of accounting fraud at Samsung BioLogics.

A business insider said, "Strong leadership is needed for new businesses that are difficult for each company to handle alone or for projects requiring the pooling of capabilities across specific affiliates." He added, "If Lee is promoted to chairman, he will be able to declare direction and vision in managing the company and work on drawing a big picture."

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