Lee Jae-yong Likely to Talk with Compliance Committee Member After 1 Year and 9 Months... Focus on 'New Samsung' Governance Structure Discussion

Governance - Revival of Control Tower - Chairman Promotion Interlinked
Must Serve as Lubricant to Accelerate Group Decision-Making Speed

'Governance' Likely to Become Main Focus with Compliance Committee's Legal Supervision and Advisory Role

Samsung Electronics Vice Chairman Lee Jae-yong applauds at the completion ceremony of Samsung Biologics Plant 4 held on the 11th at Samsung Biologics Songdo Campus in Yeonsu-gu, Incheon. From left, Go Han-seung, President of Samsung Bioepis; Vice Chairman Lee; John Rim, President of Samsung Biologics; and Choi Sung-an, President of Samsung Engineering. (Photo by Yonhap News)

[Asia Economy Reporter Moon Chae-seok] Samsung Electronics Vice Chairman Lee Jae-yong is expected to meet the second-term Samsung Compliance Committee members, an independent legal oversight and advisory body of Samsung Group, on the afternoon of the 12th, marking his first meeting with them in 1 year and 9 months. While many anticipate that the meeting will mainly serve as a platform to reaffirm fundamental compliance management intentions since it is Lee’s first encounter with the current second-term committee members, there is cautious speculation that broad discussions related to corporate governance restructuring could also take place.

According to business circles, Lee is likely to attend the Compliance Committee’s regular meeting held at the Samsung Seocho Building around 1:30 p.m. If he attends, it will be his first dialogue with the committee since January last year, marking a 1 year and 9 months interval. Although Lee was unable to maintain consistent meetings with the Compliance Committee due to his imprisonment related to the political scandal, the group’s management has been strengthening communication with the committee. For example, on June 3rd, Vice Chairman Han Jong-hee, who also heads the DX (Device Experience) Division, and other key executives met with the Compliance Committee, after which Chairman Lee Chan-hee publicly called for Lee’s pardon, drawing attention. Both the Compliance Committee and Samsung Group responded that "it is currently difficult to confirm and nothing has been finalized" regarding Lee’s attendance at the committee meeting.

There has been ongoing speculation in business circles that Lee will not only attend this month’s regular Compliance Committee meeting but may also institutionalize future meetings. This is because aspects such as 'corporate governance restructuring - revival of the control tower - promotion to chairman' are closely intertwined in terms of strengthening group decision-making, and among these, legal advice from the Compliance Committee and mutual understanding with the group are necessary to enhance the legitimacy and justification for corporate governance restructuring.

According to business sources, the meeting is expected to involve only fundamental-level discussions reaffirming compliance management intentions. It is unlikely that 'special agenda items' such as corporate governance restructuring or detailed practical matters will be raised, aside from 'general agenda items' like the Compliance Committee’s prior approval process for internal transactions exceeding 5 billion KRW between affiliates. It is also expected that detailed discussions on the Boston Consulting Group (BCG) sustainability management consulting, which has been communicated to the group, will not be thoroughly addressed during this meeting.

However, with speculation both inside and outside the business community that Samsung Group may announce Lee’s promotion to chairman and a group-wide 'new management' declaration around next month, there is growing analysis that related discussions cannot be left unattended. Particularly, while the revival of the control tower and the procedures and timing for Lee’s promotion to chairman may strongly reflect the group’s will, there are voices emphasizing that corporate governance restructuring must go through the Compliance Committee’s legal oversight and advisory process.

Corporate governance restructuring is also a core task for the second-term Compliance Committee. Among the three main focus areas, the committee identified 'realizing ESG (Environmental, Social, and Governance) management through corporate governance improvement.' Earlier this year, Chairman Lee emphasized at the launch press conference that "corporate governance improvement is a task Samsung must solve to leap forward." Discussions on Samsung Group’s corporate governance restructuring are divided into ownership structure reform and succession methods, and the Compliance Committee has stated it will strengthen its role in monitoring compliance management in preparation for the governance restructuring work that will intensify after Lee’s reinstatement.

Even if Samsung declares a 'New Samsung' under the banner of new management and revives the control tower, the consensus is that decision-making momentum will inevitably weaken without corporate governance restructuring. Many believe that establishing a decision-making system without a solid management right centered on Lee and the owner family will make it difficult to gain management momentum. Samsung abolished the Future Strategy Office, the group’s control tower, in 2017 and currently operates three task forces (TFs) by business division, but it faces pressure to execute major mergers and acquisitions (M&A) and facility investments amid deteriorating semiconductor market conditions and security issues involving major countries like the U.S. and China.

Within Samsung’s governance structure, the key chain from 'Vice Chairman Lee Jae-yong → Samsung C&T → Samsung Life Insurance → Samsung Electronics' is currently weak in the link between Life Insurance and Electronics. A variable is the ongoing National Assembly discussion on revising the Insurance Business Act (so-called Samsung Life Insurance Act), which limits insurance affiliates’ stock holdings to 3% of total assets. Although many believe the likelihood of revision is low, if realized, Samsung Life Insurance would have to dispose of approximately 20 trillion KRW worth of Samsung Electronics shares, potentially weakening Lee’s group control. The Compliance Committee stated, "Whether it is the Samsung Life Insurance Act or any other issue, we will conduct prior review and monitoring of legal risks."

Separate from the Lee-Compliance Committee meeting on this day, interest is also high regarding Lee’s promotion to chairman, including timing and process. Currently, the consensus inside and outside the business community is that Samsung Group’s founding anniversary on the 1st of next month is the most likely date. However, the second anniversary of the late Chairman Lee Kun-hee on the 25th of this month and the 35th anniversary of former Chairman Lee Byung-chul on the 19th of next month are also being mentioned.

There is limited analysis that Lee will formally accept the chairman position by obtaining shareholder approval at the March shareholders’ meeting next year and becoming a registered executive. This is because it is difficult to ignore the 'judicial risks' that still hold him back. Lee is currently facing trials related to the unfair merger of Samsung C&T and Cheil Industries and allegations of accounting fraud at Samsung BioLogics.

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