SAMSUNG ELECTRONICS:

25 YEARS OF CORPORATE
GOVERNANCE

2015

Copyright:
Prof. Florencio Lopez-de-Silanes
EDHEC Business School

Professor Florencio Lopez-de-Silanes and Rakhi Kumar, Yale MBA02 prepared this case as the basis
for class discussion rather than to illustrate the effective or ineffective governance of an organization.
Prof. Florencio Lopez-de-Silanes Samsung Electronics

INTRODUCTION

Prior to the Asian currency crises, South Korea was an investment destination for several
institutional investors and emerging market funds. Throughout the early 1990s the country
experienced an significant economic boom. South Korean conglomerates, locally know as
chaebols, had diversified into various industries from cars to microchips. Samsung
Electronics Corporation (Samsung Electronics), a rising star in the Samsung Chaebol was
considered to be a high growth company. However, in 1997, the Asian currency crises
magnified the problem of the Chaebol structure and highlighted the need for corporate
governance reforms. By 1999, a shareholder rights activist in South Korea - Prof. Hasung
Jang had taken up the cause of minority shareholders of Samsung Electronics trying to push
for governance improvements. With the help of foreign institutional investors, he planned to
fight for governance reforms in South Korea. Samuel Smith, who was a corporate
governance specialist, was hired by one of the foreign institutional investors to help figure
out the problems and appropriate changes in Samsung Electronics.

Korean Chaebols: Establishment, growth and structure.

In order to accelerate economic growth in the 1970’s, the Korean government formulated
industrial policies that encouraged investment in heavy and chemical industry (HCI).
Funded largely by government-controlled banks, affluent families took advantage of the
liberal policies and set up companies in these industries. By the end of the 1970’s
approximately 80 percent of fixed investment in the manufacturing sector was in HCI
businesses. Between 1962 and 1982, annual growth averaged 8.4%, although by the end of
the 1970’s production efficiency in priority sectors was falling. As a result, there was
excessive investment in the HCI industries and little allocation efficiency in the capital
markets1. Due to over investment in the HCI industry and small domestic markets,
companies began diversifying into unrelated businesses, giving birth to the Korean Chaebols.

1
The Institute for International Economics - Financial Services Liberalization in the WTO: Case Study of South
Korea

1
Prof. Florencio Lopez-de-Silanes Samsung Electronics

Government intervention in resource allocation proved to be very costly. Enterprises that

had access to preferential policy loans or tax incentives tended to expand their businesses
rapidly without careful appraisal of investment projects. Since the government largely made
lending decisions, creditor banks had little incentive for credit evaluations or loan
monitoring. As a result, firms were heavily leveraged and borrowed from informal credit
markets as they were usually pressed for working capital. This structural weakness put the
economy on the verge of a financial crises in early the 1970s and then again in the 1980s2.
However, public purse bailing out of large enterprises became the norm and people were
made to believe that chaebols were too big to fail.

When the government decided to open up the South Korean economy, many of the protective
measures that local companies had enjoyed during the developmental era were removed.
Companies that had expanded into unrelated businesses found that they no longer had access
to government capital. Initially, banks were also not interested in financing these projects,
nor did they have the expertise to evaluate these new high-risk businesses. Hence, business
groups started creating their own group wide internal capital markets. Transfer pricing,
cross-shareholdings and cross-guarantee of debts were some of the mechanisms employed by
chaebols to fund expansion. They pooled any funds available to the subsidiaries to
supplement outside funding of new projects. Operations of these internal finance markets
were not necessarily based on efficiency in resource allocation but were often driven by the
interests and concerns of the controlling families.3 Many Chaebols invested overseas and
‘globalization’ was the new theme. However, the globalization strategy was not well
planned. Chaebols held onto the management strategy that they had been practicing over the
last thirty years: growth in size ignoring profitability; financial structure with high debt-to
equity ratio and cross debt guarantee among affiliated companies.4 By 1997 there were over
fifty chaebols in South Korea, each with a myriad of affiliated companies all linked to one
another through a complex network of cross-holdings. Ownership and affiliation details of
twenty chaebols are provided in Exhibit 1.

2
Family-Based Business Groups: Degeneration of Quasi-Internal Organizations and Internal Markets in Korea
by Sang-Woo Nam, December 2001.
3
Ibid.
4
Corporate Governance and Economic Development: The Korean Experience by Ha Sung Jang.

2
Prof. Florencio Lopez-de-Silanes Samsung Electronics

The Samsung Group: It is all in the family.

Founded in 1938 by Mr. Byung Chul Lee, Samsung Group’s original line of business was
exporting dried fish, vegetables and fruits produced around Korea to Manchuria and Beijing
in China. Within a few years of incorporation, the company expanded its operations to
include manufacturing and sales when it set up a flourmill and bought confectionary
machines. In the 1970’s it diversified into the petrochemical, electronics and heavy
industries. By early 1990’s, the Samsung Group had grown into the fourteenth largest
company in the world. It had diversified into four primary industries, and had over twenty-
five affiliated companies.

Like most Korean companies, the Samsung Group structure developed into a confusing maze
of cross-ownership among affiliated companies. Exhibit 2 provides a list of affiliated
companies in the Samsung Chaebol while Exhibit 3a and 3b shows the complex cross-
ownership structure among the affiliated companies. For example, according to Exhibit 3a,
affiliated companies owned 15.83% of Samsung Electronics. Exhibit 3b provides the break
up of ownership between affiliates. Therefore, Samsung Company owns 4.45% of Samsung
Electronics, Samsung Life Insurance owns 8.16% and so on. By 1997, combined annual
revenues of all the businesses in the group were close to USD 100 billion, with profits
reaching USD 290 million. The Samsung Group constituted approximately 10% of the total
market value of all companies listed on the Korean stock market. However, like all other
chaebols, its debt-to-equity ratio hovered around 365%.

Samsung Electronics Corporation: The Governance of Cheabols.

Samsung Electronics was established in 1969. By the mid 1990’s, it had strategically
invested in research and development of DRAM chips and had grown into a billion dollar
company. Exhibit 4 shows the contribution made by Samsung Electronics to the overall
revenues and profits of the Samsung Cheabol. By the late 1990’s, Samsung Electronics had
24 production subsidiaries, 35 sales subsidiaries and 20 branch offices around the world
including North America, Europe, Southeast Asia, Central Asia, China and Latin America. It

3
Prof. Florencio Lopez-de-Silanes Samsung Electronics

managed four strategic businesses in the fields of Home, Mobile, Office Network and Core
Components.

However, in 1997, excess production capacity in the microchip industry lead to a downward
spiral in chip prices. Profits at Samsung Electronics plunged to new lows. The Asian
Currency crises compounded the problems facing the company. By late 1997, the company’s
debt totaled 13 trillion won (approximately USD 9 billion) and more than 70 percent of it
was in foreign currency loans5. The financial run on the economy by foreign institutional
investors saw the country’s currency tumble 10.6 percent. Domestic interest rates on three-
year corporate bonds hit 30.1 percent. The US rating agencies, in addition to downgrading
the sovereign debt to “junk bond” status, also lowered the credit worthiness rating for several
of the largest South Korean companies including Samsung Electronics6. The company’s
share prices reflected the macro and micro economic turmoil faced by the company. Exhibit
5 provides daily share prices of the Samsung Electronics stock on the Korean stock exchange
for a 15-month period starting September 1996. However, a liner trend line indicates that, by
and large, the share price was declining marginally but was above the 50,000 won mark.

After a period of negative results, minority shareholders started questioning governance

practices of the company. They alleged that Samsung Electronics had neither internal or
external corporate governance mechanism which acted as checks and balances and that all
management decisions were made taken by the Chairman. The internal mechanisms such as
Board of Directors and Auditors, did not function properly at least when it came to
monitoring the Chairman. For example they questioned the board’s decision of acquiring
shares of a firm, Ichon Electric, whose financial stability was shaky. This acquisition cost
Samsung Electronics 27.6 billion won when the company went bankrupt a few years later. 7
When things starting going wrong, neither the Chairman nor the Board of Directors took any
responsibility for failed investments or even for illegal activities. Instead the chaebol lobby
issued a report attacking minority activism. They said, “Minority shareholders’ rights to
demand compensation should be respected only in the event of embezzlement and other ill-

5
IR on the net: How they did it at Samsung Electronics.
http://www.ironthenet.com/feature.asp?current=1&articleID=2289
6
Washington Post Foreign Service: South Korea Takes Three More Punches by Steven Mufson.
7
Korean IT News: Civic Group Challenges Samsung Chairman’s Alleged Mismanagement by Kim Deok-hyun.

4
Prof. Florencio Lopez-de-Silanes Samsung Electronics

intentioned behaviors. Managerial misjudgments should not be the subject of criminal

liabilities. Activism can also harm the interests of majority shareholder and decision-making
by management.” 8

In 1998, the Board of Directors of Samsung Electronics consisted of twenty-three members.

This number had been trimmed from the previous year when the board comprised of forty-
three directors. Exhibit 6 provides a profile of the directors on the board of Samsung
Electronics. Some shareholders believed that accounting manipulation and improprieties had
become standard practice and company funds had been used to make political contributions
in the Chairman’s name. A minister in the Korean cabinet faced corruption allegation that he
earned USD 1.4 million when he was given an interest-free loan from Samsung Electronics
and acquired the Company’s shares at a discount rate while he was an ‘outside’ director on
the company board.9 External mechanism such as markets for corporate control also did not
exist and legal protection of shareholder’s rights was limited. 10 Courts in Korea did not have
experience of dealing with corporate governance cases and often their rulings seemed to go
soft on the guilty. For example, the Suwon District Court ordered Samsung's Chairman Lee
to return to the Samsung companies 7.5 billion won in damages on charges of providing
bribes to former president Roh Tae-woo. However, the court did not demand that Lee take
legal responsibility for the two mismanagement cases of his group's subsidiaries, saying he
did not participate in the decision-making.11

Samuel Smith wondered if the allegations of the minority shareholders held any merit.
Internal and external economic forces had not changed much in the last decade, yet it was
only after the Asian currency crisis that these allegations were being made.

8
The Korean Herald: Chaebol face tough attacks from minor shareholders by Yoo Cheong-mo: February
25,1999.
9
AFX News Limited: South Korean education minister resigns amid corruption allegations; August 31, 2000.
10
Corporate Governance and Economic Development: The Korean Experience by Hasung Jang.
11
Korean IT News: Civic Group Challenges Samsung Chairman’s Alleged Mismanagement by Kim Deok-
hyun.

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Prof. Florencio Lopez-de-Silanes Samsung Electronics

Hasung Jang: The voice of minority shareholders.

Dr. Hasung Jang is a well know minority shareholder rights activist in South Korea. He
received his MA in economics from the New York State University and a Ph.D. in finance
from the Wharton School. On returning to South Korea, he joined the Korean University as a
professor of finance and the director of the Center for Finance and Banking Research. As the
Chair of the Participatory Economy Committee, a minority shareholder protection civil
group, under the umbrella of the Peoples Solidarity for Participatory Democracy, Dr. Jang
took up the cause of shareholder rights in Korea. He undertook investigations to evaluate the
governance of chaebols and financial dealings among affiliated companies.

Dr. Jang targeted Samsung Electronics and made allegations of self-dealing transactions. In
particular he spoke about a transaction dated 24 March 1997, when Samsung Electronics
made a private placement of unsecured convertible bonds worth 60 billion won (US $46.1
million). He was troubled by the fact that the bonds had been sold to company insiders. The
Chairman’s son had purchased 45 billion won worth of bonds and another Samsung affiliate
had purchased the remaining bonds worth 15 billion won12. Dr. Jang alleged that this issue
was at unfavorable terms for the company and called into question the price of the bonds. On
their part, company executives explained that Samsung Electronics was badly in need of fund
and that international funding, which previously was the main source of capital had dried up
after the Asian currency crises. Further, as the company was finding it extremely difficult to
raise money from domestic financial institutions they had little choice but to privately place
the bonds. Besides the amount raised was less than one percent of existing long term loans.

Dr. Jang also alleged that Samsung Electronics had both directly and indirectly funded the
Samsung Groups’ doomed venture into the car industry at the expense of minority
shareholders. Samsung Electronics had acquired a 21.1% stake in Samsung Motors at the
acquisition cost of 170 billion won (USD 106 million). The indirect investment of Samsung
Electronics into Samsung Motors was in the form of a joint investment agreement between

12
Nascent Stages of Corporate Governance in an Emerging Market: regulatory change, shareholder activism
and Samsung Electronics by Hasung Jang and Joongi Kim. Corporate Governance Volume 10 Number 2 April
2002.

6
Prof. Florencio Lopez-de-Silanes Samsung Electronics

an Ireland-based paper company called Pan-Pacific Industrial Investments (PP) and Samsung
Electronics (and two of its affiliated companies). At first glance the PP agreement looked
like a direct investment into Samsung Motors by a foreign entity (PP) in accordance with
Korean laws regulating foreign exchange. However, under the terms of the joint venture
agreement, Samsung Electronics had guaranteed PP a certain rate of return through put and
call options within a specified redemption period, on Samsung Motor shares it (PP) owned.
This arrangement was made in addition to bridge loans made by Samsung Group to PP. Dr.
Jang alleged that that this transaction was not a clear direct investment and in fact violated
legal requirements for other types of transactions. Samsung Electronics rebutted the
allegations and explained that the put and call options were just clauses in the agreement put
there to provide additional security for PP. The Company was more like a third party in the
transaction and the agreement did not have any financial implications for the shareholders.

Samuel Smith’s initial tasks 1999

1997 had been a troubled period for Korean companies. The country had experienced a
severe economic shock, which had practically destroyed the economic structure that had
developed over the past four decades. It was confusing and upsetting times for companies
and investors, all of whom has suffered tremendous loss. Sam had to objectively analyze the
allegations made by the minority shareholders and check for fundamental problems at the
company. Naturally, dealing with an emerging market came with its challenges. For one,
economic data was scarce and very little corporate information was publicly available. As
Sam sat down to prepare for his meeting with his client he made a list of questions he needed
to answer.

Samsung 15 years later (2014)

By 2014, Samsung had survived the scandals of 1999-2000, and had also engaged in some
governance reforms. Today the Samsung group, whose 74 companies have estimated annual
revenues of more than 400 trillion won ($387 billion) and 369,000 employees, is into
everything from washing-machines and holiday resorts to container ships and life insurance.
But it is the group’s predominant electronics division that has made its patriarch particularly

7
Prof. Florencio Lopez-de-Silanes Samsung Electronics

proud: Samsung has overtaken its Japanese rivals to become the world leader in this industry
by revenues, outselling everyone in memory chips, flat-panel televisions and smartphones.
Now Samsung is again at a point in its 76-year history at which much has to change.

“A 2010 book called Think Samsung by the company's former chief legal counsel Kim
Yong-chul has made the largest waves since. It revealed alleged shocking details of Lee Kun-
Hee's personal corruption, claiming that he stole up to 10 trillion won (about $10 billion)
from Samsung subsidiaries, destroyed evidence, and bribed government officials to ensure
the smooth transfer of power to his son. Reaction to the book was divided in Korea, with the
vast majority of mainstream media refusing to cover it or run advertising, and many local
people viewing Kim's allegations as little more than sour grapes; the result of unsettled
grudges with the company. But affection for Samsung runs deep in South Korea, and an
assault on the company's culture can almost be seen as an attack on the country itself — even
when the man in question is a convicted fraudster

Lee Kun-Hee resigned from Samsung in 2008 after being indicted and found guilty of
embezzlement and tax evasion in Samsung's infamous slush funds scandal. Kim Yong-chul
alleged that the company had a 200 billion won (roughly $200 million) budget for bribing
prosecutors and politicians into turning a blind eye to its legal misconduct. Despite
prosecutors seeking seven years in jail with a fine of 350 billion won ($350 million), Lee was
handed a suspended three-year sentence and fined just 110 billion won ($100 million) — a
relative pittance for the world's 106th richest man. Months later, South Korean president Lee
Myung-bak gave Lee Kun-hee a second personal pardon so that he could remain on the
International Olympic Committee; the Samsung chairman went on to lead a successful bid to
host the 2018 Winter Olympics in Pyeonchang. Amidst widespread criticism that the incident
highlighted the favorable treatment given to corrupt Chaebol executives, Lee returned as
Samsung Electronics chairman the following year.”13

In May2014 Mr Lee, 72 years old, suffered a heart attack. When news broke of the older Mr
Lee’s heart attack, the shares of Samsung Electronics went up. He is still in hospital. Nobody

13
King of Samsung: a chairman's reign of cunning and corruption:
http://www.theverge.com/2012/11/30/3709688/samsung-25-years-lee-kun-hee

8
Prof. Florencio Lopez-de-Silanes Samsung Electronics

expects him to return as he did in 2010, when he came back after avoiding prison for
embezzlement and tax evasion. Mr Lee’s only son, Lee Jae-yong (pictured, right), looks
certain to take control of Samsung’s main businesses, and his two daughters will run some
smaller ones. The younger Mr Lee, now 46, joined Samsung Electronics in 2001 and ten
years later had the title of vice-chairman. Other than a few bare biographical facts, little is
known about him.

The succession is unlikely to happen before another badly needed change is well under way:
reforming the group’s Byzantine corporate structure. For example, the group’s holding
company, which has just changed its name from Samsung Everland to Cheil Industries, owns
19.3% of Samsung Life, which owns 34.4% of Samsung Card, which owns 5% of Cheil
(Exhibit 7).

This corporate hairball is now likely to be simplified. The rules against such circular
shareholding structures are being tightened in South Korea. But the most immediate
consideration is the imminent succession—and the resulting inheritance tax. The family will
have to pay about six trillion won, according to some estimates, and needs to raise cash. This
also goes a long way towards explaining why Samsung denies any talk of a restructuring: the
more it seems a sure thing, the higher the share price and thus the tax bill.

The restructuring has clearly begun. In September 2014, Samsung Heavy Industries and
Samsung Engineering announced plans to merge. This is supposed to be followed by the
IPOs of Samsung SDS, a provider of IT services, perhaps as early as November 2014, and of
Cheil, which is expected early next year.

In all, the younger Mr. Lee has his work cut out for him. He not only needs to restructure the
group, but also ensure the transition of the succession and engage in further governance
reforms for a new generation of investors with a very different perspective than the ones his
father dealt with.

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Prof. Florencio Lopez-de-Silanes Samsung Electronics

Exhibit 1: Share Ownership and Affiliates of Chaebols

Controlling
Family Ownership No. of
Ownership Affiliates No. of listed
Cheabol (%) (%) Affiliates Affiliates

LG 5.00 30.20 44 8
Hyundae 20.98 28.57 28 9
Sam-sung 8.50 30.11 27 12
Lotte 36.05 35.74 22 3
Dae-woo 6.49 24.35 18 7
Han-Wha 6.61 29.60 17 6
Doo-San 13.88 43.19 17 5
Ssang-Yong 6.45 35.95 15 7
SK 12.62 22.94 13 3
Han-Jin 27.73 20.36 12 5
Dae-Rim 5.72 17.07 12 5
Kolon 4.57 37.92 12 4
Hyo-Sung 18.56 18.64 11 2
Han-il 23.91 28.35 11 5
Dong-Kuk steel 21.22 37.70 10 4
Kum-Ho 16.31 14.20 10 5
Kia 2.48 21.29 8 2
Sam-mi 15.33 25.64 6 2
Dong-Bu 14.36 25.52 6 5
Koryo textile 5.33 29.76 5 1
Hai-Tai 6.38 30.09 5 2
Kukdong Const 11.29 43.24 3 2

Notes: Data as of 1989 with the exception of LG (1992)

Source: Business Groups in China Compared with Korean Chaebols by Keun Lee and
Wing T. Woo

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Prof. Florencio Lopez-de-Silanes Samsung Electronics

Exhibit 2: Affiliated companies within the Samsung Group

Industry Affliated Companies

Electronics Samsung Electronics

Samsung Electro-Mechanics
Samsung SDI
Samsung Corning
Samsung SDS
Samsung Networks
Samsung Corning Precisions Glass

Machinery & Heavy Industries Samsung Heavy Industries

Samsung Techwin

Chemicals Samsung General Chemicals

Samsung Petrochemicals
Samsung Fine Chemicals
Samsung BP Chemicals

Financial Services Samsung Life Insurance

Samsung Fire & Marine Insurance
Samsung Card
Samsung Securities
Samsung Capital
Samsung Investment Trust Management
Samsung Venture Investment

Miscellaneous Samsung Engineering

Cheil Industries
Samsung Everland
Shilla Hotel & Resorts
Cheil Communications
SI Corporation
Samsung Lions
Samsung Medical Center

Note: This table shows the most important affiliate companies within the Samsung
Group for the period of interest.

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Prof. Florencio Lopez-de-Silanes Samsung Electronics

Exhibit 3a: Ownership structure of Companies in the Samsung Chaebol.

(all figures in %'s)

Directors Total of
Owner Non-profit & Self- Affiliate
No. Name of Firms Family foundation Managers Owned Firms

1 Samsung Electronics 5.41 0.13 0.16 3.52 15.83

2 Samsung Display Devices 2.44 0.19 2.89 19.77
3 Samsung Co. 2.32 0.49 0.13 5.17 19.55
4 Samsung Motors 30.60 38.36
5 Samsung Heavy Industries 0.02 0.08 27.35
6 Samsung Electro-mechanics 0.46 1.42 27.54
7 Samsung Life Insurance 15.00 5.00 25.00 2.25
8 Samsung Aerospace Industries 0.05 0.03 26.47
9 Cheil Wool Textile 3.23 0.10 3.00 2.20
10 Samsung General Chemicals 89.39
11 Samsung Precision Chemicals 0.74 39.15
12 Samsung Corning 49.36
13 Hotel Shilla 0.21 1.35 12.67
14 Samsung Securites 0.85 0.84 0.64 0.01 22.33
15 Samsung Engineering 0.30 31.20 6.20 6.23 16.03
16 Samsung Winners Card 90.27
17 SI Corporation 0.06 22.48
18 Samsung Everland 67.30 23.99
19 Samsung Factoring Financing 100.00
20 The Joong-Ang Daily News 41.80 14.92
21 Samsung Petro-Chemicals 36.33
22 Samsung Commercial Motors 100.00
23 Samsung Fire & Marine Insurance 0.36 4.50 0.68 3.98 13.05

Source: Business Group in China Compared with Korean Cheabols by Keun Lee and Wing T. Woo

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Prof. Florencio Lopez-de-Silanes Samsung Electronics

Exhibit 3b: Detailed Break-up of Affiliate Shareholding Provided Above

(all figures in %'s)
Decomposition of shares by major affiliates

No. Name of Firms 1 2 3 5 6 7 8 9 14 18 20 23

1 Samsung Electronics 4.45 8.16 0.61 0.01 0.15 0.45 2.00

2 Samsung Display Devices 10.87 5.39 0.01 0.28 3.19
3 Samsung Co. 6.22 0.09 13.24
4 Samsung Motors 21.11 7.45 2.48 6.08 1.24
5 Samsung Heavy Industries 18.92 0.28 2.56 4.92 0.07 0.60
6 Samsung Electro-mechanics 21.92 5.59 0.03
7 Samsung Life Insurance 2.25
8 Samsung Aerospace Industries 8.13 10.14 7.75 0.12 0.33
9 Cheil Wool Textile 2.20
10 Samsung General Chemicals 3.82 10.40 37.79 10.28 25.90 0.90 0.30
11 Samsung Precision Chemicals 9.31 12.74 6.20 0.21 0.29 3.45 3.51 3.44
12 Samsung Corning 48.36 1.00
13 Hotel Shilla 5.72 6.95
14 Samsung Securites 1.47 10.62 4.75 5.49
15 Samsung Engineering 16.03
16 Samsung Winners Card 54.37 14.40 21.50
17 SI Corporation 11.39 9.95 0.13 1.01
18 Samsung Everland 1.89 5.00 17.10
19 Samsung Factoring Financing 74.75 25.00 0.25
20 The Joong-Ang Daily News 3.92 2.50 8.50
21 Samsung Petro-Chemicals 9.93 10.00 16.40
22 Samsung Commercial Motors 100.00
23 Samsung Fire & Marine Insurance 11.49 1.56

Source: Business Group in China Compared with Korean Cheabols by Keun Lee and Wing T. Woo

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Prof. Florencio Lopez-de-Silanes Samsung Electronics

Exhibit 4a: Contribution of Samsung Electronics (parent company only) to Samsung

Group.

All figures in Billion Samsung Electronics Samsung Group Samsung Electronic (parent
Won (parent company) co.) as a % of Samsung Group

1997 1998 1999 1997 1998 1999 1997 1998 1999

Sales 18,465 20,084 26,118 161,448 85,788 106,730 11.4% 23.4% 24.5%
Net Income 124 313 3,170 487 238 2,511 25.5% 131.5% 126.2%

Assets 23,066 20,776 24,710 187,824 109,022 133,213 12.3% 19.1% 18.5%
Liabilities 17,236 13,806 11,378 162,120 89,839 101,023 10.6% 15.4% 11.3%
Shareholders Equity 5,830 6,970 13,332 25,704 19,183 32,190 22.7% 36.3% 41.4%

Source: Samsung Website

Exhibit 4b: Contribution of Samsung Electronics (consolidated basis) to Samsung

Group.
All figures in Billion Samsung Electronics Samsung Group Samsung Electronic (parent
Won (consolidated) co.) as a % of Samsung Group

1997 1998 1999 1997 1998 1999 1997 1998 1999

Sales 22,682 25,772 32,088 161,448 85,788 106,730 14.0% 30.0% 30.1%
Net Income (610) (362) 3,175 487 238 2,511 -125.3% -152.1% 126.4%

Assets 32,035 24,105 29,178 187,824 109,022 133,213 17.1% 22.1% 21.9%
Liabilities 27,386 19,016 16,004 162,120 89,839 101,023 16.9% 21.2% 15.8%
Shareholders Equity 4,649 5,089 13,174 25,704 19,183 32,190 18.1% 26.5% 40.9%

Source: Samsung Website

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 Prof. Florencio Lopez-de-Silanes Samsung Electronics

Exhibit 5: Closing price of Samsung Electronic Shares and the Liner Trend of its Stock
Price.

Daily Closing Price of Samsung Electronics Shares

September 1, 1996 to December 31, 1997

80,000.0
Share Price in Korean Won

70,000.0
60,000.0
50,000.0
40,000.0
30,000.0
20,000.0
10,000.0
-
1/1/97

2/1/97

3/1/97

4/1/97

5/1/97

6/1/97

7/1/97

8/1/97

9/1/97
10/1/96

11/1/96

12/1/96

10/1/97

11/1/97

12/1/97
Day

Close Linear (Close)

15
Prof. Florencio Lopez-de-Silanes Samsung Electronics

Exhibit 6: Profile of Directors on the Samsung Electronics Board

Note: The information provided in this exhibit is for illustrative purposes only. It does not reflect the real board
structure at the Samsung Electronic Corporation.

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Prof. Florencio Lopez-de-Silanes Samsung Electronics

Exhibit 7: Samsung Group in 2014

17