There has been a legal move to dismantle the cross-shareholding structure. The convoluted governance structure “allows the family to wield voting power for some 16 percent of Samsung Electronics shares, five times what it actually owns, and enough to control the board of directors.” Yet, it may all change once a new law is enacted.
As discussed in the previous posts, one of the main culprits of the 1997 financial crisis was corporate overborrowing. The pending regulatory measures are intended to avert a repeat of the 1997 crisis.
“By April 2012, under a law that prohibits finance companies’ owning stakes of more than 5% in non-financial firms, Samsung Card will have to sell a 20.6% stake in Everland. Such a sale may trigger a restructuring that could generate big tax bills for Samsung and might threaten the Lee family’s control of the group.”
Regulatory measures may be the only way to force Korean chaebols to overhaul their convoluted governance system.
However, the recent ruling of the Korean Supreme Court seems to favor the practice of cross-shareholdings in chaebols. Samsung’s 67-year-old patriarch, Lee Kun-hee, who succeeded his late father, Lee Byung-chul, has presided over the Samsung empire for two decades. Although he has led Samsung to become the global leader in the electronics industry by focusing on research and development, industrial design, and marketing, he stepped down after being charged with tax evasion and artificially low priced-share selling to his son.
The Korean Supreme Court recently ruled that Samsung’s bond sale was legitimate, clearing of charges. This ruling would allow transferring control of the Samsung group to Mr. Lee’s son, Lee Jae-yong. This succession process is unprecedented among publicly traded companies.
At any rate, whether the Korean government would succeed in taming the chaebols through chaebol-reform laws remains unclear.
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