Recommendation To ‘Spin off Samsung Electronics’ Creates Stir

It was belatedly revealed that Fair Trade Commission chairman Kang Chul-kyu met Samsung’s restructuring chief and recommended spinning off Samsung Electronics from the Samsung Group.

Some from the business and academic sectors are criticizing this meeting, claiming, “it was an inappropriate intervention in business activities, which was beyond the authority of the FTC chairman.”

On August 1, in an interview with an Internet newspaper, chairman Kang said that he had suggested to restructuring chief Lee about turning Samsung Electronics into an independent company and dividing other units of the Samsung Group into various “sub” holding companies as one way to improve the corporate governance.

According to the interview, when chairman Kang mentioned this, Lee responded by saying, “Fifteen trillion won would be needed for Samsung to qualify as a holding company, but it would not be possible to raise that much.” He then added, “Samsung can never become a holding company.”

Commenting on the this last remark, Chairman Kang said, “becoming a holding company is not an obligation but only a recommendation. Samsung has to develop out of its current backward corporate governance.” He cited making Samsung Electronics independent as another example.

He also suggested recognizing the independency of the subsidiaries while loosely sharing the Samsung brand and image as an alternative measure.

Public Information Officer of the FTC Nam Sun-woo explained, “Chairman Kang mentioned this when he met the chiefs of Korea’s four major conglomerates’ restructuring offices, Samsung, LG, SK and Hyundai, on April 4.” He went on to say, “By turning Samsung Electronics into an independent company, we can stop it from suffering the same fate as other units that have become insolvent.”

Commenting on this, Cho Gun-dong, a professor at Myongji University, said, ”Is there any clause in the office regulations of the FTC chairman that stipulates he has to intervene in the governance of individual companies’ structure?” Cho went on to add, “Each company has to choose its own corporate governance.”

One official from Samsung Electronics Is quoted as saying, “The concept of making Samsung Electronics independent stems from the proposition that it is providing unreasonable support to other subsidiaries.” He then added rhetorically, “How can it provide such assistance when 60% of its shareholders are foreigners?”

He also added, “If there is any unjustifiable assistance, it is the FTC’s job to punish companies in accordance with the law. He [the FTC chairman] is thinking that a company can be torn into pieces according to political reasoning.”

Kwang-Am Cheon iam@donga.com