Over the past couple months, Samsung Electronics has been embroiled in a rather embarrassing and wide-ranging corruption scandal that has completely shaken up the entire nation. The company’s brand image has taken a massive hit – also factoring in the quite recent Galaxy Note 7 explosions. Investors had been aggressively pushing the Korean giant to split the business into two and adopt a holdings structure. But, Samsung has today revealed that it has decided not to go ahead with the said proposition at the moment.
Coming as a disappointment for most investors, this revelation was made public by Chief Executive Kwon Oh-hyun during the annual shareholder meeting today. This decision comes with regards to the company’s roadmap, which it unveiled last year. It had then been looking to appease shareholders and was looking to alternatives such as splitting the company and setting up a central holdings entity that could exercise control over other division.
A holdings company structure, for those unaware, is one where a prominent entity that owns other companies outstanding stock. The holdings company itself does not manufacture or produce any goods but pulls the strings as the corporate entity for the division whose stocks it has in its possession. The holdings company does so without being involved in the day to day affairs of these companies. But, Samsung doesn’t seem to be ready to take up this job right now.
Further, Kwon went on to add that the restructuring exercise is highly unlikely at this stage when the company is trying to fend off the political scandal it has been allegedly associated with. It has rejected the long-anticipated process, which had been proposed by U.S-based activist hedge fund Elliott Management. Further, shedding light on the delay in the restructuring process, Kwon said,
There are negative effects that would arise from transitioning to a holding company so it does not appear it will be easy to do so at present.
The Korean hardware behemoth’s heir and de-facto head Jay Y. Lee, along with five other Samsung executives have been alleged of bribery, embezzlement, and purgery charges. Though the aforementioned executives have denied their involvement in the scandal, which accuses them of meddling with and shelling out close to $40 million in bribes to President Park Guen-hye’s close friend Choi Soon-Sil. The court believes that the said amount has been siphoned in exchange for favors for building their existing electronics empire, which Samsung is today.
With regards to the same, Kwon apologized to the shareholders gathered at their annual meeting. He said that the company did not shell out any donations (or bribes) to achieve their current status in the smartphone and chip industry — which has been performing extremely well. He further added,
I’m sorry for the scandal. I apologize once again for the mistake with the Note 7 last year. It was a failure that arose from trying new technology.
The corruption charges have led to the President’s impeachment and the court has upheld its decision, meaning Korea will witness the removal of a democratically elected representative for the first time. With regards to the same, Samsung’s heir is now being held in judicial custody. Though his counsel has denied all charges in a mock hearing, we still await a final decision that will decide the Korean giant’s future. With Jay Y. Lee’s father fighting illness and him expected to go behind bars, the company’s ascension and restructuring is hanging by a rather thin thread. This is being called the trial of the century.
