Corporate governance in era of director’s accountability for all shareholders:
Samsung chairman JY Lee should lead by example
In this new era of director’s duty of loyalty to all shareholders, management decisions can no longer be based up the interests of controlling family
The escalating controversy at Samsung Life’s accounting practice boils down to structural abnormalities embedded within the Samsung Group's governance framework
Chairman JY Lee must take ownership in top-level decisions and normalize the group's irregular governance structure
On July 15th, the National Cabinet approved an amendment to the Commercial Act that explicitly imposes a duty of loyalty on directors to act in the interests of all shareholders. The director’s expanded accountability became effective immediately. The Korean capital market is now filled with expectations that this will help resolve the so-called “Korea Discount”.
Then, on July 17th, the criminal trial of Samsung Electronics Chairman JY Lee regarding the unlawful merger involving Samsung C&T ended, as the Supreme Court upheld his acquittal. However, as our Forum stated in our previous Opinion following the Court of Appeal’s decision, this case revealed several inappropriate actions that were not directly addressed by criminal judgement. These two events, occurring just days apart, offer clear guidance for the future of corporate governance in Korea.
First, corporate decisions should not be based on the interests of controlling shareholders such as JY Lee and his family.
Second, criminal sanctions are not the optimal mechanism for resolving shareholder conflicts of interest.
In the meantime, on July 16th, the Korean Accounting Standards Board (KASB) expressed serious concern over the accounting treatment of dividend-paying insurance contracts related to Samsung Life’s equity holdings in Samsung Electronics and declared that strict compliance to accounting principles should be enforced. With the conclusion of a legal case on Samsung’s Lee family, it seems a new, substantial event is beginning to unfold.
A drawn-out legal battle is counterproductive to the public interest. The recent verdict on JY Lee highlights the limitations of legal judgment for criminal cases, which, despite its clear delineations, often fails to identify the truly 'right' course of action. So, what specifically should be done?
JY Lee himself provided a key insight. He reportedly stated in his final court address: “I received a report on the merger and believed it would clearly benefit the future of both companies. I had absolutely no intention to harm shareholders or mislead investors for personal gains.” If this accurately reflects his intent, Chairman Lee must now proactively and promptly address the issue.
Currently, Samsung Life and its shareholders, and countless participating policyholders of dividend-paying insurance contracts are reportedly suffering losses due to Samsung Life's decades-long retention of Samsung Electronics shares on its balance sheet.
In our view, issues such as the application of the equity method to a stake in Samsung Fire & Marine Insurance, or the accounting treatment of dividend-paying insurance contracts as liabilities, are merely peripheral matters. It is an open secret that the recurring conflict between societal norms and Samsung’s high-level policy direction stems from Lee's unwavering efforts to maintain control over Samsung Electronics.
Irrespective of the threat of litigation, the current scenario, in which Samsung Life and its shareholders incur losses while control is preserved through the capital and sacrifice of dividend-paying policyholders, cannot be sustained in the long term. When selling insurance products, Samsung Life promised its policy holders dividends from gains on equity investments. Yet now, Samsung Life refuses to divest the stake to avoid booking liabilities under accounting rules, while even seeking exemptions from global accounting standards. How long can such a fundamentally irregular decision be maintained?
In today's fiercely competitive environment, even the most focused and disciplined corporate strategies offer no guarantee of success. Therefore, a decisive break with the past is imperative for Samsung and the Lee family's future.
Given that this issue fundamentally pertains to the family’s control rights, it cannot be resolved by any employee or CEO within Samsung's organizational structure. It is Chairman Lee alone who must make the bold and necessary decisions to normalize Samsung's corporate governance structure, which continues to erode trust not only domestically but also within the global market.
August 8th, 2025
Korean Corporate Governance Forum
Chairman, Namuh Rhee
Vice Chairman, Joonbum Cheon
Corporate governance in era of director’s accountability for all shareholders:
Samsung chairman JY Lee should lead by example
In this new era of director’s duty of loyalty to all shareholders, management decisions can no longer be based up the interests of controlling family
The escalating controversy at Samsung Life’s accounting practice boils down to structural abnormalities embedded within the Samsung Group's governance framework
Chairman JY Lee must take ownership in top-level decisions and normalize the group's irregular governance structure
On July 15th, the National Cabinet approved an amendment to the Commercial Act that explicitly imposes a duty of loyalty on directors to act in the interests of all shareholders. The director’s expanded accountability became effective immediately. The Korean capital market is now filled with expectations that this will help resolve the so-called “Korea Discount”.
Then, on July 17th, the criminal trial of Samsung Electronics Chairman JY Lee regarding the unlawful merger involving Samsung C&T ended, as the Supreme Court upheld his acquittal. However, as our Forum stated in our previous Opinion following the Court of Appeal’s decision, this case revealed several inappropriate actions that were not directly addressed by criminal judgement. These two events, occurring just days apart, offer clear guidance for the future of corporate governance in Korea.
First, corporate decisions should not be based on the interests of controlling shareholders such as JY Lee and his family.
Second, criminal sanctions are not the optimal mechanism for resolving shareholder conflicts of interest.
In the meantime, on July 16th, the Korean Accounting Standards Board (KASB) expressed serious concern over the accounting treatment of dividend-paying insurance contracts related to Samsung Life’s equity holdings in Samsung Electronics and declared that strict compliance to accounting principles should be enforced. With the conclusion of a legal case on Samsung’s Lee family, it seems a new, substantial event is beginning to unfold.
A drawn-out legal battle is counterproductive to the public interest. The recent verdict on JY Lee highlights the limitations of legal judgment for criminal cases, which, despite its clear delineations, often fails to identify the truly 'right' course of action. So, what specifically should be done?
JY Lee himself provided a key insight. He reportedly stated in his final court address: “I received a report on the merger and believed it would clearly benefit the future of both companies. I had absolutely no intention to harm shareholders or mislead investors for personal gains.” If this accurately reflects his intent, Chairman Lee must now proactively and promptly address the issue.
Currently, Samsung Life and its shareholders, and countless participating policyholders of dividend-paying insurance contracts are reportedly suffering losses due to Samsung Life's decades-long retention of Samsung Electronics shares on its balance sheet.
In our view, issues such as the application of the equity method to a stake in Samsung Fire & Marine Insurance, or the accounting treatment of dividend-paying insurance contracts as liabilities, are merely peripheral matters. It is an open secret that the recurring conflict between societal norms and Samsung’s high-level policy direction stems from Lee's unwavering efforts to maintain control over Samsung Electronics.
Irrespective of the threat of litigation, the current scenario, in which Samsung Life and its shareholders incur losses while control is preserved through the capital and sacrifice of dividend-paying policyholders, cannot be sustained in the long term. When selling insurance products, Samsung Life promised its policy holders dividends from gains on equity investments. Yet now, Samsung Life refuses to divest the stake to avoid booking liabilities under accounting rules, while even seeking exemptions from global accounting standards. How long can such a fundamentally irregular decision be maintained?
In today's fiercely competitive environment, even the most focused and disciplined corporate strategies offer no guarantee of success. Therefore, a decisive break with the past is imperative for Samsung and the Lee family's future.
Given that this issue fundamentally pertains to the family’s control rights, it cannot be resolved by any employee or CEO within Samsung's organizational structure. It is Chairman Lee alone who must make the bold and necessary decisions to normalize Samsung's corporate governance structure, which continues to erode trust not only domestically but also within the global market.
August 8th, 2025
Korean Corporate Governance Forum
Chairman, Namuh Rhee
Vice Chairman, Joonbum Cheon