

You’d think exploding phones would be enough of a problem, especially when the replacement batteries started to burst into flames as well, and then the entire line had to be recalled, but the Galaxy Note 7 is not the sole cause of Samsung’s current problems.
Lee Jae-yong, the son of the current chairman Lee Kun-hee, who remains in hospital since a heart attack in 2014, is up for election to the board of Samsung Electronics at the extraordinary general meeting (EGM) tomorrow (October 27).
But there is considerable controversy surrounding this election, even though his appointment seems inevitable. According to analyst Kap Seol, who has been studying the company for over 10 years, and who also works as an International Trade Union Confederation (ITUC) consultant, Lee was named COO in 2009. “In 2012,” said Seol, “he assumed the title of vice chairman of Samsung Electronics, but not of the board of directors. By taking up the vice chairman position of the company, he could exert power not subject to a shareholder vote.”
Remedying this lack of accountability is the reason ISS is advising shareholders to vote for Lee’s appointment since this will “better align his interest with, and strengthen his accountability to, other shareholders,” according to ISS’s report. Glass Lewis, on the other hand, is recommending against his election to the board because there are two few independent directors. There is, in fact, a bare majority of independent directors on the board, 5:4. Korean proxy advisory firm Sustinvest is also recommending against Lee’s appointment. The company’s largest shareholder, the National Pension Service of Korea, has said that it will be supporting Lee. BlackRock, Vanguard and Franklin Resources are among the 10 largest shareholders, along with NPS of Korea… and Samsung Life Insurance. As a family firm, or chaebol, Samsung is tightly controlled by the Lee family, though it owns only around 4.8 per cent of shares directly. However, shares held by other companies in the chaebol mean that the family controls closer to 18 per cent of the firm.
Local reporting in Korea, said Seol, indicates that Lee won’t even be attending the EGM. “Also,” continued Seol, “there have been no board meetings during the whole Galaxy Note 7 crisis and the recall was announced via e-mail to the company’s management, without any board input.”
In addition to the recall and the election controversy, hedge fund Elliot Management Corp recently published an open letter to the company’s board called “The Samsung Electronics Value Enhancement Proposals”.These include establishing a holding company structure, distributing a special cash dividend of KRW30trn or KRW 245,000 per share, listing Samsung operating company on NASDAQ in addition to KRX, and appointing three additional independent directors to the board.
Samsung is also facing criticism from the ITUC and from SHARPS (Supporters of Health and Rights of People in the Semiconductor Industry), the Seoul-based advocacy group for the victims of Samsung’s blood-disorder cluster. Via its StopSamsung site , SHARPS has called on Lee to “reinitiate a dialogue” and to become a “stakeholder steward and good corporate citizen”. SHARPS was formed 10 years ago, according to Seol, “by a doctor, a labour attorney and the family of one of the victims of the cluster illness. It has filed close to 300 complaints on behalf of victims who have fallen ill. Samsung has offered some compensation, but without admitting any guilt.”
Workplace injuries are one of the focusses of a recent report Modern Tech, Medieval Conditions from the ITUC which calls for the company to “Make a full and sincere apology for the occupational disease cluster that has harmed workers and transparently and sufficiently compensate former workers who contracted a variety of diseases while working at its LCD and chip labs.” ITUC’s allegations are wide-ranging, and, in Korea, include: worker suicides, workplace deaths and accidents, exposure to hazardous chemicals, union busting and anti-union activities, false subcontracting, long working hours, low wages, worker surveillance, and antitrust allegations. Even in Europe there are accusations of price fixing and cartel-like behaviour.
The ITUC report also focusses on issues of control. According to Sharan Burrow, ITUC’s General Secretary: “The Asia Monitor Resource Centre notes that in 2012 Lee Kun-hee, chairman of Samsung Group, and his family owned only a two per cent share in Samsung Electronics directly, but they were able to control Samsung Electronics because of the circular equity structure of Samsung Everland, Samsung Life, Samsung C&T and Samsung Card.”
Despite the controversies, and the fact that Lee was fundamentally in charge during the entire Galaxy 7 debacle, this level of control will likely guarantee Lee’s election to the board, even if some outside investors vote against him.
“Until the NPS of Korea becomes more active in ensuring good governance, not just at Samsung, but at all Korean chaebols, change is unlikely,” commented Seol.