Samsung Group should at least come up with an outline on how to resolve Samsung Life Insurance’s excessive equity holding in Samsung Electronics by the end of the year as a show of commitment to separate financial from non-financial operation and to facilitate the government reforms in holding and insurance regulations, said the chief of Korea’s antitrust agency.

“How much exceptions the government can make for Samsung’s case depends on the will from the conglomerate. The government cannot make a judgment unless we see action from Samsung first. It should come up with a plan within the year,” said Kim Sang-jo, chairman of the Fair Trade Commission, in an exclusive interview with the Maeil Business Newspaper.

He was referring to the pressure on Samsung Life to dispose of its “excess” equity holding in Samsung Electronics under a revised bill requiring big insurers to stack up greater reserves against risks.

Under the new regulation, an insurer of assets beyond 5 trillion won ($4.7 billion) must build up loss reserves if equity investment in individual non-financial company goes beyond 15 percent of its net worth or combined holdings in non-financial units exceed 60 percent of net worth.

Samsung Life owns 8.23 percent in Samsung Electronics or 10.62 million shares valuing around 26 trillion won at the current price of the bellwether technology stock. Since Samsung Life’s net worth stands at 31 trillion won, it would have to build up cash reserves of additional 21.35 trillion won for the excess beyond 15 percent net worth which is around 4.65 trillion won. If it cannot afford that much, it would have to sell shares worth 21 trillion won in Samsung Electronics.

Samsung has been strongly opposing the regulation of imposing current market value instead of the acquisition value.

Kim, who had been dubbed as a “chaebol sniper” during his activist and scholar days, said whether to make an exception for Samsung, given the colossal scope, depends on what the conglomerate shows to address its dominant position in both manufacturing and financial field.

“If Samsung Life realigns to financial holding structure, it could sell about 2 percent stake in Samsung Electronics to Samsung C&T to stop commanding a large stake in Samsung Electronics. The financial authority can extend a grace period of maximum seven years for the sale. But compliance with insurers’ 3 percent cap on non-financial companies is another issue,” he said.

“How much of an exception the government can grant all depends on how much confidence Samsung earns from the market and society,” he said.

To align the overall management, he commended a dual management system which would help the group’s decision-making process more transparent without having to set up a holding entity.

“The key to Samsung Group’s governance over its affiliates lies in how to run its control tower that exerts power over its units as well as assumes responsibilities of all,” Kim said.

Kim said the current system of running the group through three affiliates Samsung Electronics, Samsung Life Insurance, and Samsung C&T is not feasible for effectively managing the gigantic business empire and advised to adopt a two-tier system consisting of two separate corporate governance entities - supervisory and management. His idea is that the control tower should act as an informal decision-making body for group-wide business matters and then have each subsidiary make a final decision.

Samsung Group had its entire subsidiaries governed under a head office called Future Strategy Office but it shut down the control tower after it came under the spotlight for arranging donations to impeached former Korean president Park Geun-hye and her friend Choi Soon-sil in return for alleged favors.

Kim also called for a change in conglomerates’ general practice of passing on management power within the owner family members. He said it is more desirable for the third-generation of the founding family members to restrict role as a “coordinator” of a group instead of leading the business conglomerate as a chief commander. Groups have grown too large to be managed by a single person, he said.

On Hyundai Motor Group’s outline to streamline structure, Kim positively viewed the attempt to address complicated ownership structure.

“But it is up to the shareholders and market to judge the endeavors, not the government. The government only watches if the actions are in line with the laws,” he added.

By Seok Min-soo and Cho Jeehyun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]