Samsung Electronic Corporation: Governance of Chaebols

CASE SAMSUNG ELECTRONIC CORPORATION GOVERNANCE OF CHAEBOLS Copyright Prof. Florencio Lopez-de-Silanes Professor Florencio Lopez-de-Silanes and Rakhi Kumar, Yale MBA02 prepared this case as the basis for class discussion rather than to dilate the effective or ineffective establishment of an organization. Prof. Florencio Lopez-de-Silanes INTRODUCTION theatrical role Samsung Electronics Prior to the Asian currency crises, S push throughh Korea was an investing destination for several institutional investors and rising commercialize funds. Throughout the early nineties the country experienced an economic boom. federation Korean conglomerates, locally know as chaebols, had diversified into various industries from cars to microchips. Samsung Electronics potful (Samsung Electronics), a rising star in the Samsung Chaebol was considered to be a postgraduate growth caller. However, in 1997, the Asian currency crises magnified the problem of the Chaebol structure and highlighted the t ake away for institution reforms. By 1999, a shareholder rights activist in southeastward Korea Prof. Hasung Jang had taken up the cause of nonage shareholders of Samsung Electronics.With the protagonist of foreign institutional investors, he plotted to fight for brass instrument reforms in South Korea. As a corporate governance specialist, Samuel Smith, had been contracted by a large foreign institutional investor to help reform Samsung Electronics. KOREAN CHAEBOLS Establishment, growth and structure. In order to accelerate economic growth in the 1970s, 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 caboodle up ompanies in these industries. By the end of the 1970s approximately 80 percent of fixed investment in the manufacturing sector was in HCI railway linees. Between 1962 and 1982, annual growth averaged 8. 4%, although by the end of the 1970s production power in priority sectors was falling. As a result, there was excessive investment in the HCI industries and little allotment efficiency in the bully markets1. Due to over investment in the HCI industry and small internal markets, companies began diversifying into unrelated businesses, giving birth to the Korean Chaebols.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 The Institute for International Economics Financial Services easiness in the WTO Case Study of South Korea 1 1 Prof. Florencio Lopez-de-Silanes Case Samsung Electronics rapidly without careful appraisal of investment projects. Since the government largely do bestow decisions, creditor banks had little incentive for credit evaluations or loan monitoring.As a result, firms were heavily leveraged and borrowed from informal c redit markets as they were usually pressed for working capital. This structural helplessness put the rescue 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 evasive measures that local companies had enjoyed during the teachingal era were removed.Companies that had expanded into unrelated businesses found that they no longer had access to government capital. Initially, banks were besides not interested in funding 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-share holdings and cross-guarantee of debts were some of the mechanisms employed by chaebols to fund expansion. They pool ed 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 practically 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 interact companies. By 1997 there were over fifty chaebols in South Korea, each with a myriad of affiliated companies all linked to one other through a complex network of cross-holdings. Ownership and affiliation details of twenty chaebols are provided in salute 1. Family-Based Business throngs Degeneration of Quasi-Internal Organizations and Internal Mar kets in Korea by Sang-Woo Nam, December 2001. 3 Ibid. 4 Corporate Governance and Economic Development The Korean receive by Ha birdsong Jang. 2 2 Prof. Florencio Lopez-de-Silanes THE SAMSUNG GROUP It is all in the family.Case Samsung Electronics Founded in 1938 by Mr. Byung Chul Lee, Samsung Groups 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 1970s it diversified into the petrochemical, electronics and heavy industries. By early 1990s, the Samsung Group had grown into the quaternionteenth largest company in the world.It had diversified into foursome primary industries, and had over twentyfive affiliated companies. Like most Korean companies, the Samsung Group structure developed into a confusing maze of cross-ownership a mong affiliated companies. present 2 provides a list of affiliated companies in the Samsung Chaebol while Exhibit 3a and 3b shows the complex crossownership 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 form market. However, resembling all other chaebols, its debt-to-equity ratio hovered around 365%. SAMSUNG ELECTRONICS CORPORATION Governance of Cheabols. Samsung Electronics was established in 1969.By the mid 1990s, it had strategically invested in research and developmen t 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 1990s, 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 Case 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 monetary values. Profits at Samsung Electronics plunged to new lows. The Asian Currency crises compounded the problems facing the company. By late 1997, the companys 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 for eign institutional investors saw the countrys currency tumble 10. 6 percent. Domestic interest rates on threeyear corporate bonds correspond 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 companys 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 foreign 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 dining table of Directors and Auditors, did not scarper properly at least when it came to monitoring the Chairman. For example they questioned the boards 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 jump on of Directors took any certificate of indebtedness for failed investments or even for illegal activities. Instead the chaebol lobby caterd a report attacking minority activism. They said, Minority shareholders rights to demand compensation should be respected solely in the event of embezzlement and other illIR on the net How they did it at Samsung Electronics. http//www. ironthenet. com/feature. sp? current=1&articleID=2289 6 Washington Post Foreign Service So uth Korea Takes Three More Punches by Steven Mufson. 7 Korean IT News civil Group Challenges Samsung Chairmans Alleged Mismanagement by Kim Deok-hyun. 5 4 Prof. Florencio Lopez-de-Silanes Case 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 fortythree carry onors. Exhibit 6 provides a profile of the directors on the board of Samsung Electronics. Some shareholders believed that accounting habit and improprieties had become standard practice and company funds had been used to make political contributions in the Chairmans name. A minister in the Korean cabinet faced corruption allegation that he earned USD 1. 4 million when he was given an interest-fre e loan from Samsung Electronics and acquired the Companys shares at a discount rate while he was an outside director on the company board. External mechanism such as markets for corporate control also did not exist and legal protection of shareholders 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 Samsungs 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 groups ubsidiaries, saying he did not get into 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 later the Asian curren cy crisis that these allegations were being made. The Korean Herald Chaebol face tough attacks from minor shareholders by Yoo Cheong-mo February 25,1999. 9 AFX News Limited South Korean teaching method minister resigns amid corruption allegations August 31, 2000. 10 Corporate Governance and Economic Development The Korean Experience by Hasung Jang. 1 Korean IT News Civic Group Challenges Samsung Chairmans Alleged Mismanagement by Kim Deokhyun. 8 5 Prof. Florencio Lopez-de-Silanes HASUNG JANG The voice of minority shareholders. Case Samsung Electronics 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 frugality Committee, a minority shareholder protecti on 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. million). He was troubled by the fact that the bonds had been sold to company insiders. The Chairmans son had purchased 45 billion won worth of bonds and another Samsung affiliate had purchased the re importanting bonds worth 15 billion won12. Dr. Jang alleged that this issue was at unfavorable bourns 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 an d 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 straightway 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% guess 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 correspondence 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 Case Samsung Electronics an Ireland-based paper company called Pan-Pacific Industrial Investments (PP) and Samsung Electronics (and two of its affiliated companies). At first lance 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 violate 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 SMITHS TASK 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 disconcerting 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 in public available. As Sam sat down to prepare for his meeting with his customer he made a list of questions he needed to answer. 1. What are the benefits and disadvantages of the Korean chaebol structur e?In particular what governance issues can arise due(p) to this structure? 2. Analyze the capital structure of Samsung Electronics. Compare it with the capital structure of a company in the similar line of business (primarily manufacture of chips) from another developed country and comment on the differences. 7 Prof. Florencio Lopez-de-Silanes Case Samsung Electronics 3. If Samsung Motors makes an after tax profit of USD100 million, what share of that would go to the Lee family (owners)? What percentage of Samsung Motors do they directly own? Note You do not have to provide the exact number. A good approximation will be adequate. ) 4. The client wants to recommend governance changes with special emphasis on the board of directors. Evaluate the current board of Samsung Electronics. What are the strengths and weaknesses in the current board composition? How many directors can be classified as non-executive? How many can be classified as independent? What are your criterias for assess ing director independence? Do you think changes need to be made to the current board composition?If no why not, if yes what changes would you recommend? 5. Based on the companys financials as of December 31, 1997 and publicly available information, investigate the allegations made by Dr. Jang. Do you think the convertible bond issue was a self-dealing transaction? How would you prove that claim? What evidence do you have on you claim? (Note you are not expected to do a DCF. ) 6. Does the agreement with the Pan-Pacific Industrial Investment resemble a simple direct investment or something else? Why was the guarantee clause included in the contract? Does it change the instrument?If you were on the Audit committee of the company what questions would you wait about this transaction? 8 Prof. Florencio Lopez-de-Silanes Exhibit 1 Share Ownership and classs of Chaebols Controlling Family Ownership Ownership Affiliates No. of (%) (%) Affiliates 5. 00 20. 98 8. 50 36. 05 6. 49 6. 61 13. 8 8 6. 45 12. 62 27. 73 5. 72 4. 57 18. 56 23. 91 21. 22 16. 31 2. 48 15. 33 14. 36 5. 33 6. 38 11. 29 30. 20 28. 57 30. 11 35. 74 24. 35 29. 60 43. 19 35. 95 22. 94 20. 36 17. 07 37. 92 18. 64 28. 35 37. 70 14. 20 21. 29 25. 64 25. 52 29. 76 30. 09 43. 24 44 28 27 22 18 17 17 15 13 12 12 12 11 11 10 10 8 6 6 5 5 3Case Samsung Electronics Cheabol LG Hyundae Sam-sung Lotte Dae-woo Han-Wha Doo-San Ssang-Yong SK Han-Jin Dae-Rim Kolon Hyo-Sung Han-il Dong-Kuk steel Kum-Ho Kia Sam-mi Dong-Bu Koryo stuff Hai-Tai Kukdong Const No. of listed Affiliates 8 9 12 3 7 6 5 7 3 5 5 4 2 5 4 5 2 2 5 1 2 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 9 Prof. Florencio Lopez-de-Silanes Exhibit 2 Affiliated companies within the Samsung Group Industry Electronics Case Samsung ElectronicsAffliated Companies Samsung Electronics Samsung Electro-Mechanics Samsung SDI Samsung Corning Samsung SDS Samsung Networks Samsung Corning Precisions Glass Samsung overburdened Industries Samsung Techwin Samsung General Chemicals Samsung Petrochemicals Samsung Fine Chemicals Samsung BP Chemicals Samsung Life Insurance Samsung Fire & Marine Insurance Samsung Card Samsung Securities Samsung Capital Samsung Investment Trust Management Samsung Venture Investment Samsung engineering Cheil Industries Samsung Everland Shilla Hotel & Resorts Cheil Communications SI confederacy Samsung Lions Samsung Medical CenterMachinery & Heavy Industries Chemicals Financial Services Miscellaneous Note This table shows the most important affiliate companies within the Samsung Group for the period of interest. 10 Prof. Florencio Lopez-de-Silanes Case Samsung Electronics Exhibit 3a Ownership structure of Companies in the Samsung Chaebol. (all figures in %s) No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Name of Firms Samsung Electronics Samsung Display Devices Samsung Co.Samsung Motors Samsung Heavy Industri es Samsung Electro-mechanics Samsung Life Insurance Samsung Aerospace Industries Cheil Wool Textile Samsung General Chemicals Samsung Precision Chemicals Samsung Corning Hotel Shilla Samsung Securites Samsung Engineering Samsung Winners Card SI Corporation Samsung Everland Samsung factor in Financing The Joong-Ang Daily News Samsung Petro-Chemicals Samsung Commercial Motors Samsung Fire & Marine Insurance Owner Family 5. 41 2. 32 Directors Non-profit & foundation Managers 0. 13 2. 44 0. 49 0. 02 0. 16 0. 19 0. 13 30. 60 0. 08 0. 46 25. 00 0. 05 0. 10 0. 74 0. 1 0. 64 6. 20 0. 06 SelfOwned 3. 52 2. 89 5. 17 Total of Affiliate Firms 15. 83 19. 77 19. 55 38. 36 27. 35 27. 54 2. 25 26. 47 2. 20 89. 39 39. 15 49. 36 12. 67 22. 33 16. 03 90. 27 22. 48 23. 99 100. 00 14. 92 36. 33 100. 00 13. 05 1. 42 0. 03 3. 00 15. 00 5. 00 3. 23 0. 85 0. 30 0. 84 31. 20 1. 35 0. 01 6. 23 67. 30 41. 80 0. 36 4. 50 0. 68 3. 98 Source Business Group in China Compared with Korean Cheabols by Keun Lee and W ing T. Woo 11 Prof. Florencio Lopez-de-Silanes Case Samsung Electronics Exhibit 3b Detailed Break-up of Affiliate Shareholding Provided Above (all figures in %s)Decomposition of shares by major affiliates No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Name of Firms Samsung Electronics Samsung Display Devices Samsung Co. Samsung Motors Samsung Heavy Industries Samsung Electro-mechanics Samsung Life Insurance Samsung Aerospace Industries Cheil Wool Textile Samsung General Chemicals Samsung Precision Chemicals Samsung Corning Hotel Shilla Samsung Securites Samsung Engineering Samsung Winners Card SI Corporation Samsung Everland Samsung Factoring Financing The Joong-Ang Daily News Samsung Petro-Chemicals Samsung Commercial Motors Samsung Fire & Marine Insurance 2 3 4. 45 5 6 7 8. 16 5. 39 6. 22 8 9 0. 61 0. 09 0. 07 0. 60 14 0. 01 0. 01 13. 24 18 0. 15 0. 28 1. 24 20 0. 45 23 2. 00 3. 19 10. 87 21. 11 18. 92 21. 92 8. 13 3. 82 9. 31 48. 36 5. 72 16. 03 54. 37 10. 40 12. 74 7. 45 0. 28 2. 48 6. 08 2. 56 4. 92 5. 59 7. 75 2. 20 0. 03 0. 12 25. 90 0. 90 3. 51 2. 25 0. 33 0. 30 3. 44 10. 14 37. 79 6. 20 10. 28 0. 29 0. 21 1. 47 14. 40 11. 39 1. 89 25. 00 3. 92 10. 00 21. 50 3. 45 1. 00 6. 95 10. 62 4. 75 5. 49 9. 95 5. 00 0. 25 2. 50 100. 00 11. 49 8. 50 16. 40 0. 13 17. 10 1. 01 4. 75 9. 93 1. 56 Source Business Group in China Compared with Korean Cheabols by Keun Lee and Wing T. Woo 12 Prof. Florencio Lopez-de-Silanes Case Samsung Electronics Exhibit 4a Contribution of Samsung Electronics (parent company only) to Samsung Group. All figures in Billion won Samsung Electronics (parent company) 1997 1998 20,084 313 20,776 13,806 6,970 1999 26,118 3,170 24,710 11,378 13,332 1997 Samsung Group Samsung Electronic (parent co. ) as a % of Samsung Group 1999 106,730 2,511 133,213 101,023 32,190 1997 11. % 25. 5% 12. 3% 10. 6% 22. 7% 1998 23. 4% 131. 5% 19. 1% 15. 4% 36. 3% 1999 24. 5% 126. 2% 18. 5% 11. 3% 41. 4% 1998 85,788 238 109,022 89,839 19,183 gross s ales Net Income Assets Liabilities Shareholders Equity Source Samsung Website 18,465 124 23,066 17,236 5,830 161,448 487 187,824 162,120 25,704 Exhibit 4b Contribution of Samsung Electronics (consolidated basis) to Samsung Group. All figures in Billion Won Samsung Electronics (consolidated) 1997 Sales Net Income Assets Liabilities Shareholders Equity Source Samsung WebsiteSamsung Group Samsung Electronic (parent co. ) as a % of Samsung Group 1999 106,730 2,511 133,213 101,023 32,190 1997 14. 0% -125. 3% 17. 1% 16. 9% 18. 1% 1998 30. 0% -152. 1% 22. 1% 21. 2% 26. 5% 1999 30. 1% 126. 4% 21. 9% 15. 8% 40. 9% 1998 1999 32,088 3,175 29,178 16,004 13,174 1997 161,448 487 187,824 162,120 25,704 1998 85,788 238 109,022 89,839 19,183 22,682 25,772 (610) (362) 32,035 27,386 4,649 24,105 19,016 5,089 13 Prof. Florencio Lopez-de-Silanes Case Samsung ElectronicsExhibit 5 Closing price of Samsung Electronic Shares and the lining Trend of its Stock Price. Daily Closing Price of Samsung Electronic s 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 10/1/96 11/1/96 12/1/96 9/1/97 10/1/97 11/1/97 12/1/97 Day Close Linear (Close) 14 Prof. Florencio Lopez-de-Silanes Case Samsung Electronics Exhibit 6 Profile of Directors on the Samsung Electronics Board No.Name of Director 1 Kun-Hee Lee 2 Jong-Yong Yun 3 Hak-Soo Lee 4 Yoon-Woo Lee 5 Dae-Je Chin 6 Doh-Seok Choi 7 In-Joo Kim 8 Jing-Wan Kim 9 Sung Rai Choi 10 Soon-Taek Kim 11 Jin-Hoon Je 12 Joong-Koo Lee 13 Yang-Gyu Park 14 Hong-Sik Ko 15 Soo-Woong Park 16 Jae Yong Lee Designation Chairman & CEO, Samsung Electronics feebleness Chairman & CEO, Samsung Electronics chairwoman & CEO, Group Reformation Headquarters, Samsung Electronics president & CEO, Device Solutions Network, Samsung Electronics President & CEO, Digital Media Network, Samsung Electronics President & CFO, Samsung Electronics Executive VP, Group Reformation Headquarters, Samsung Electronics President & CEO, Samsung Heavy Industries President & CEO, Samsung Petrochemicals Vice President & CEO, Samsung SDI Company Ltd. Vice President & CEO, Samsung Factor Financing President & CEO, Samsung Techwin Company Ltd. President & CEO, Samsung Networks President & CEO, Samsung General Chemicals Company Ltd. Vice President & CEO, Samsung Fine Chemicals Ltd. Family Relation none None None None None None None None None None None None None None None 7 Ra-Hee Hong Lee 18 Soo-Bin Lee 19 Hyeon-Gon Kim 20 Chong-Yeul Pae 21 Kap-Hyun Lee 22 Suk-Soo Kim 23 Tetsuo Iwasaki Owns 25. 1% of the shares of Samsung Everland, which Son of Kun-Hee controls Samsung Life, the holding company of Lee Samsung Group Director General, Samsung Museums. Wife of Kun-Hee Lee Chairman & CEO, Samsung Life Insurance Company None Vice President & CEO, Samsung BP Chemicals Company Ltd. CEO, Samsung Corporation Advisor, Boston Consulting Gr oup President Law Office of Suk-Soo Kim None None None None Chairman/CEO/President Applied Komatsu None engine room 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. 15