INTRODUCTION

 24th August, 2016-explosion of Samsung Note 7 phones due to the overheating of

phone batteries.

 Pictures and videos of phones overheating, exploding or catching fire were uploaded
on social media platforms by the users.

 Recall costed Samsung billions in lost profits and adversely impacted its reputation
and credibility.

 The case highlights and discusses about issues such as:

1. Board composition and corporate governance in Chaebols

2. Corporate culture

3. Supply chain management

4. Risk and crisis management.

About SAMSUNG:

 Founded on 1 March, 1963- Samsung Group is a South Korean multinational

conglomerate.

 Offers a wide range of products and services under the Samsung brand through a large
number of companies.

 President and Chairman of the Samsung Group and Samsung Electronics- Kun-Hee
Lee.

 First mobile phone handset was launched in 1991 and the wireless internet phone in
1999.

 Main business strategy was to focus on the mobile phone business and by 2012, it
became the largest manufacturer of mobile phones.

 Main source of its revenue is the Information Technology and Mobile

Communications business unit, which contributed 45% of Samsung’s total sales in
2015.
 Kun-Hee Lee

About the board of directors:

 2010- board of Samsung was made up of nine members and headed by Vice
Chairman and Chief Executive Officer, Oh-Hyun Kwon.

 There were three other executive directors (EDs) – Jong-Kyun Shin and Boo-Keun
Yoon headed the three main business units while Jae-Yong Lee was in charge of
general business administration. The remaining five members – Jae-Wan Bahk, Han-
Joong Kim, Kwang-Soo Song, Byeong-Gi Lee and In-Ho Lee – were independent
directors (IDs).

 The term of office of Samsung’s board members was three years.

 Samsung also established several committees under the main board, such as the
management committee.

 Kun-Hee Lee was hospitalised in 2014.

 Jae-Yong Lee, the only son of the Chairman, had been considered the de facto leader
of Samsung and was nominated to its board on 12 September, 2016.

The Chaebol structures:

 It is a family-run conglomerate organisation structure unique to businesses in South

Korea.
 Allows a single founding family to control a wide range of diversified and legally
independent affiliates.

 In Samsung’s case, in 2012 , the Lee family effectively controlled the entire Samsung
group with only 1.67% of the overall group shares.

 The dynastic dictatorship characteristic of the Chaebol also tends to ensure that power
is maintained through family succession of the Chairman position, regardless of his
managerial abilities

 Shareholding structure of most Chaebols also tends to expose itself to frauds,

embezzlement and bribery, amongst other issues.

 Samsung Group’s Kun-Hee Lee was convicted twice of bribery and tax evasion but
was never placed in jail. Instead, he received a pardon from the Korean president due
to his political connections and continued to manage the Group.

 Checks and balances on the controlling shareholder family have been found to be
severely lacking in Chaebols

 The lack of transparency also affects Chaebol valuation, with Chaebols such as the
Samsung Group often severely undervalued.

 This phenomenon is known as the “Korean Discount”.

 After the Note 7 incident, Elliott Associates estimated Samsung’s undervaluation to

be at least 70%.