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Tuesday, April 23, 2024

Lee Jae-yong appointed chairman of Samsung Electronics

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Lee Jae-yong speaks at a Samsung Electronics chip factory in Pyeongtaek, Gyeonggi on May 20 when U.S. President Joe Biden and President Yoon Suk-yeol visited the site. [President Press Corps]
Lee Jae-yong was appointed executive chairman of Samsung Electronics on Thursday as the company, Korea’s largest, faces a myriad of challenges.

The board of directors, which voted to grant Lee the title, said that the appointment would ensure stability and improve decision-making processes.

“The board cited the current uncertain global business environment and the pressing need for stronger accountability and business stability in approving the recommendation,” according to a statement released by the electronics maker.

Lee was recommended by independent director and board chairman Kim Han-jo, and the decision is effective as of Oct. 27. No inauguration ceremony was held.

In Korea, chairman is a symbolic title distinct from chairman of the board, which is a board position requiring shareholder approval. Lee is not currently a company director.

A spokesperson at Samsung Electronics explained that the title is more about formalizing Lee’s current leadership role.

“He has led the company since his father and former Chairman Lee Kun-hee went into coma in 2014,” said the spokesperson who spoke on the condition of anonymity. Lee Kun-hee passed away in 2020 at the age of 78.

“Today’s decision only makes the role official,” he said. The precise relationship between the chairman and the board of directors has not been clarified, but the spokesperson said the board will continue to oversee and guide management of the company.

Some analysts believe that granting Lee the title could help the company in terms business relationships.

“The new title would allow for stronger accountability in management and help him network more efficiently on the global stage,” said Song Jae-yong, professor of strategy and international management at Seoul National University who co-authored a book titled “Samsung Way.”

Lee Jae-yong, 54, received a presidential pardon in August. He was pardoned for bribing former President Park Geun-hye in 2017, but he still faces other charges for violating accounting rules and spreading false information to investors.

Following the announcement, Lee vowed to make effort to win public admiration for the company.

“I am taking on heavy responsibilities,” he told reporters after attending a trial on Thursday. He said he would do his best the make Samsung Electronics “a company loved and trusted by the public.”

Business lobbying groups welcomed the move.

“The promotion will likely enhance stability in management and strengthen accountable management, an essential element to respond to uncertainties,” said Korea Chamber of Commerce and Industry in a statement released Thursday.

The Federation of Korean Industries echoed the expectation.

“The Korean economy faces headwinds amid an intensifying tension between the United States and China,” it noted in a statement, “We hope that Samsung Electronics, which will maintain competitiveness through aggressive investment, will turn the risk into an opportunity.”

Critics said that the appointment emphasized the leniency toward a convicted businessman and one still facing charges.

“Lee Jae-yong is not completely free of legal risks and he can again put the company at risk,” Solidarity for Economic Reform, a shareholders’ activist group, said in a statement.

The group noted that Lee is indicted of accounting fraud and engineering a merger between Cheil Industries and Samsung C&T to strengthen his influence over Samsung Electronics and related companies.

The group called for an independent oversight body.

“We are wary of Lee Jae-yong becoming chairman because there is no tool or system to prevent a reoccurrence of an event where the interests of shareholders are compromised for the sake of those of founding family members,” it said.

Corporate governance specialists said that Lee will likely become a director of the company, which requires shareholder approval.

“He will likely return as registered director at Samsung Electronics,” said Lee Hyun-oh, a senior analyst at Sustinvest, a financial advisory firm on corporate governance. Lee did not stand for a second term as a board member at Samsung Electronics after his first term ended in 2019.

Lee Hyun-oh said that Samsung could form a holdings company by spinning off either Samsung Life Insurance, the largest shareholder of Samsung Electronics, or Samsung C&T, the second largest shareholder, to increase Lee’s influence over Samsung Electronics. Lee Jae-yong owns 1.63 percent of the company, is the largest shareholder for Samsung C&T, with an 18 percent stake, and the second largest for Samsung Life Insurance, with 10.44 percent.

Lee Jae-yong was first recognized as a vice chairman in 2012 after working for the company as a chief operating officer.

Samsung Electronics faces a multitude of challenges.

Operating profit declined 31.4 percent in the third quarter on year, the first decline since 2019. The company’s shares are down 24.3 percent this year.

“Unfortunately, we have failed to take a leap forward over the past years,” Lee told chief executives on Oct. 25 after a memorial ceremony for Lee Kun-hee, his father.

“We haven’t made it to lead new businesses while market competitors fiercely threaten us,” he said.

During a luncheon with executives, Lee vowed to make bold investments into new technologies. He has selected advanced chips, biopharmaceuticals, automotive products and next-generation network technologies as the focus of the investments.

BY PARK EUN-JEE, CHOI EUN-KYUNG [park.eunjee@joongang.co.kr]