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Samsung Electronics vice president Lee Jae-yong and Lotte chairman Shin Dong-bin

The Fair Trade Commission (FTC) named Samsung Electronics vice president Lee Jae-yong as Samsung’s de facto head according to the Fair Trade Act on May 1 in place of his father, Samsung chairman Lee Kun-hee.

The change comes four years after Lee Kun-hee’s hospitalization with severe health problems. According to the Fair Trade Act, the term head (literally “same person” in Korean legalese) legally refers to a person or corporation with de facto control over a particular chaebol. Explaining the reasons behind the decision in a press briefing, FTC chairman Kim Sang-jo said, “Among other things, it’s a reflection of the fact that Lee Jae-yong was the one who decided to strategically dismantle the Future Strategy Office (FSO).”

Samsung has been working in various ways to pave the way for the succession of management powers within the group since Lee Kun-hee was sidelined by a myocardial infarction in May 2014. As a result, Lee Jae-yong has come to own the largest single share in Samsung C&T and other top-tier companies in the Samsung Group, while sitting at the pinnacle of the Samsung governance structure as Samsung Electronics vice president. According to the law, however, the currently non-communicative Lee Kun-hee remained head of Samsung.

Lee Jae-yong named as de facto head of Samsung

Current status of conglomerates with assets over KRW5 trillion (US$4.66 billion)

As the group’s de facto leader after the change, Lee stands to bear social responsibility for work funneling and other practices, as well as legal responsibility for actions such as submitting fraudulent data on the group. The efficacy of these regulations had been the subject of some controversy while the bedridden Lee Kun-hee was designated the Samsung Group’s same person.
“At Samsung and Lotte, the situation is one where they can’t assume legal responsibility because the group head is in the hospital or some similar reason,” said Economic Reform Research Institute (ERRI) senior fellow researcher Wi Pyeong-ryang.

“This amendment of the ‘same person’ has allowed for a correspondence between the group’s decisions and responsibility for them,” Wi concluded.

The FTC explained that it conducted a full-scale examination on the amendment of Samsung’s head. It considered company shares and governing authority – which are key criteria for de facto head designation – and looked into the state of Lee Kun-hee’s health. Since Lee Jae-yong’s share in Samsung Electronics falls well short of the “combined 30% for associated individuals” that serves as an ownership criterion, the assessment was based mainly on his governing authority.

“When making a determination on the governing authority criterion, you have to look at who has made the important decisions in terms of the group’s overall organization and project structure,” explained Kim Sang-jo.

“There are many situational factors at Samsung, but one of them is the dismantling of the FSO,” he added, indicating that one of the key bases for assessing Lee’s governing authority was the fact that he decided and executed last year’s dismantling of the FSO, a key organization within the group. The FTC also obtained a document from Lee Kun-hee’s family physician confirming that he is “incapable of communication.”

Some are arguing the amendment of the group’s designated same person could impact Lee Jae-yong’s third trial in connection with government influence peddling. The FTC’s decision means it recognizes him as the head of Samsung according to the law. But the FTC dismissed the interpretation.

“The decision does not mean that the FTC has made a determination on [Samsung’s] management authority having been passed down or when that is supposed to have happened, so this amendment will not serve as evidence in court,” Kim Sang-jo said.

Samsung said it had “no particular position” on the change in its same person designation. On the matter of Lee Kun-hee’s health, it said he was “maintaining stable condition.”

Chairman Shin Dong-bin of Lotte identified as de facto head

In addition to Samsung, chairman Shin Dong-bin was designated the de facto head at Lotte – which ranks in the top five for assets among South Korean groups – in place of general chairman Shin Kyuk-ho, who suffers from severe dementia. On the Lotte case, the FTC explained that the “designation of Shin Dong-bin as the same person may be a way of more appropriately encompassing the scope of Lotte’s affiliations than the previous same person.”

Lotte said the FTC’s designation “means that Chairman Shin Dong-bin is now directing management as both the official and practical representative of Lotte.”

“We hope Chairman Shin will be able to participate in management soon,” it added. Shin is currently incarcerated after receiving a two-year, six-month prison sentence in February of this year in his first trial on charges of providing bribes to former President Park Geun-hye and others.

Naver founder Lee Hae-jin, who raised objections when he was designated as same person for the first time in Sept. 2017, retained the status despite selling off part of his stake and resigning his board position this year.

“While the same person [Lee Hae-jin] recently sold 0.6% of his share, he remains Naver’s largest individual investor [at 3.72%],” the FTC said.

“The same person also resigned his board position, but it may be reasonably concluded that he exercises controlling influence on the company’s management,” it added.

By Choi Hyun-june and Lee Jung-gook, staff reporters

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