[UPDATES] Samsung vice chairman becomes registered board member

By Park Sae-jin Posted : October 27, 2016, 14:12 Updated : October 27, 2016, 14:12

[Yonhap News Photo]


Samsung Electronics vice chairman Jay Y. Lee became a registered board member
Thursday as the world's largest smartphone maker reported a 29.6 percent drop in its third-quarter operating profit.

The only son of Samsung Group's bedridden patriarch Lee Kun-hee joined the boardroom at a meeting of shareholders when the tech giant is reeling from a debacle caused by its fire-prone flagship smartphone.

From now, Lee can play an active role in important decision-making as Samsung needs "significant changes" to provide safe and reliable products and regain confidence from customers, said Samsung's vice chairman Kwon Oh-hyun.

Kwon said Samsung would focus on "timely" investments and corporate re-organization to introduce a more open corporate culture. 

Lee, who joined Samsung Electronics in 1991, has controlled group management from behind especially since his father was hospitalized in May 2014 after being hit by a stroke.  The group has raised a huge amount of money in reserve through the sale of non-core units in preparation for the transfer of leadership.

The board meeting bolstered speculation that the country's largest family-run conglomerate would step up efforts to streamline its bloated structure to focus on futuristic businesses like bioengineering, smart auto parts, batteries.

Lee, however, faces daunting challenges on the road. The first task he has to tackle is a smartphone debacle caused by faulty batteries for its Galaxy Note 7 that has damaged Samsung' brand value and reliability.

Samsung's operating profit in the July-September period fell to 5.2 trillion won (4.58 billion US dollars) from 7.3 trillion won a year ago. Samsung's IT and mobile division posted a third-quarter operating profit of only 100 billion won.

For his smooth power succession, Lee is also required to speed up corporate restructuring, starting with the upcoming initial public offering of Samsung Biologics.

Samsung Biologics is the world's third-largest producer of biomedicines in terms of production capacity after Switzerland's Lonza Group and Germany's Boehringer Ingelheim Pharmaceuticals. Once listed, its market value at about 10 trillion won.

Samsung Biologics, which owns 91 percent of Samsung Bioepis, the developer of copied biotech drugs called biosimilars, is 51 percent owned by Samsung C&T and 46.8 percent controlled by Samsung Electronics.

Analysts have floated a possible scenario that the group would be streamlined into two major sections with Samsung Life Insurance controlling financial units and Samsung Electronics spearheading nonfinancial affiliates such as Samsung SDS.

Without support from foreign shareholders who control nearly 50 percent, a corporate split is not possible.

US activist fund Elliott Management has suggested that Samsung could use its smartphone debacle for a chance to improve corporate governance.

"We believe that the company's forthcoming new leadership can build on the company's initial response to this situation by adopting best-in-class operational and corporate governance improvements," Elliott said, urging Samsung to split into holding and operating companies.

Aju News Lim Chang-won = cwlim34@ajunews.com
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