Lee Jae-yong steps down from registered inside director position within Samsung Electronics

Posted on : 2019-10-13 14:19 KST Modified on : 2019-10-19 20:29 KST
Samsung vice chairman becoming more actively involved in management
Samsung Electronics Vice Chairman Lee Jae-yong poses for a photograph with other Samsung executives at a Samsung C&T construction site in Riyadh
Samsung Electronics Vice Chairman Lee Jae-yong poses for a photograph with other Samsung executives at a Samsung C&T construction site in Riyadh

After three years, Samsung Electronics Vice Chairman Lee Jae-yong is stepping down from his position as a registered inside director with the company. His decision appeared influenced by the “precedent” of the National Pension Service (NPS) opposing the inside director reappointments of late former Hanjin Chairman Cho Yang-ho and SK Chairman Chey Tae-won at Korean Air and SK last March. The result is an ironic turn of events where Lee is becoming even more actively involved in management after letting go of his registered director status, considered a symbol of “responsible management.”

According to accounts from business world figures on Oct. 6, Samsung Electronics does not plan to hold a board meeting and ad hoc general shareholders’ meeting by Oct. 26, the date when Lee’s term as an inside director is set to end. A board meeting and general shareholders’ meeting are needed for directors to be reappointed. This indicates that Lee is stepping down from his inside director position without seeking a renewal of his three-year term. His name first appeared on the list of directors in October 2016 – 15 years after he took on his first executive role as a senior vice president in 2001 – amid criticisms accusing him of holding only the title of “vice president” without a registered director position making him legally responsible for managerial decisions.

Analysts said the decisive factor in Lee’s decision to forgo reappointment was the NPS’ “weight” as a majority shareholder in major companies. In March, the NPS submitted an opinion opposing the reappointment of Chey Tae-won as a registered inside director at SK, concluding that he had a “history of compromising corporate value and/or violating shareholder interests” – a decision influenced by factors including Chey’s conviction for embezzling company funds. The NPS moved to actively exercise its shareholder rights with another statement the same month opposing the reappointment of Cho Yang-ho as a director, with the Hanjin chairman also facing a trial on charges including embezzlement. Chey’s reappointment eventually went through despite the NPS’ objections, while Cho’s reappointment was ultimately voted down.

The NPS holds a 9.97% stake in Samsung Electronics. With chairman and majority shareholder Lee Kun-hee and his “special relations” accounting for 21.24% of its ownership, it would be impossible to predict the outcome even if the NPS opposed Lee Jae-yong’s reappointment. But most observers agreed that societal controversy alone would be enough of a burden for Lee. The possibility of Lee facing an actual prison sentence is looking much higher after the Supreme Court remanded his case to the Seoul High Court on Aug. 29 while recognizing the charges of illegal management practices, unlike the court in his second trial. The fact that his trial in the remanded case is set to begin on Oct. 25 – around the same time as his reappointment procedures would have taken place – appears to have figured in as a form of pressure in public opinion terms. Another issue is the intensifying momentum in prosecutors’ investigation of accounting fraud at Samsung BioLogic, including recent sweeping search and seizure operations on Samsung affiliates.

But while Lee may be stepping down as a registered director, his management role is expected to only grow more active. Having moved to increase his own presence just before the Supreme Court decision through an increase in and promotion of “on-site management” amid intensified export controls by Japan, Lee has been covering wider ground recently, including a Sept. 15 visit to a Samsung C&T construction site in Saudi Arabia two weeks after the Supreme Court ruling. It was Lee’s first visit yet to a construction company’s overseas site. On Oct. 10, he plans to visit Samsung Display’s Tangjeong site in Asan, South Chungcheong Province, to personally announce a large-scale investment plan. His actions are seen as bearing out predictions that he would stress the importance of his own “role” amid the economic crisis at a time when the threat of prison time looms larger than ever following the Supreme Court’s recognition of his management success as part of a bribery arrangement.

Samsung Electronics said that Lee “will continue with his current management activities as vice president even if he does step down as a registered director.”

“There will not be any major changes,” the company added.

But Lee could end up losing his position as vice president if the ruling against him is upheld in keeping with the Supreme Court’s conclusion. The Act on the Aggravated Punishment, etc. of Specific Economic Crimes states that the justice minister may demand dismissal in cases of economic crimes such as embezzlement. With that provision effectively existing only on paper to date, many are watching to see whether Lee becomes the first-ever chaebol head for whom it is invoked.

By Song Gyung-hwa, staff reporter

Please direct comments or questions to [english@hani.co.kr]

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