Samsung Electronic Corporation: Governance of Chaebols

slip SAMSUNG ELECTRONIC CORPORATION GOVERNANCE OF CHAEBOLS procure Prof. Florencio Lopez-de-Silanes Professor Florencio Lopez-de-Silanes and Rakhi Kumar, Yale MBA02 prep bed this case as the basis for class discussion or else than to illust pose the effective or uneffective governance of an organization. Prof. Florencio Lopez-de-Silanes INTRODUCTION fiber surface-to-air missilesung Electronics preliminary to the Asiatic gold crises, sulfur Korea was an investment destination for several institutional investors and emerge market investment callers. Throughout the ahead of time nineties the country take ind an sparing boom. southwesterly Korean conglomerates, locally know as chaebols, had change into various industries from cars to splinterings. Samsung Electronics Corpo dimensionn (Samsung Electronics), a insurrection star in the Samsung Chaebol was considered to be a high maturement follow. However, in 1997, the Asian currency crises magnified the problem of the Chaebol grammatical construction and highlighted the need for governance reforms. By 1999, a plowholder rights activist in South Korea Prof. Hasung Jang had taken up the cause of nonage shareholders of Samsung Electronics.With the admirer of hostile institutional investors, he planned to fight for governance reforms in South Korea. As a integrated governance specia dip, Samuel Smith, had been bargained by a queen-sized foreign institutional investor to help reform Samsung Electronics. KOREAN CHAEBOLS Establishment, growth and complex body part. In order to accelerate economic growth in the 1970s, the Korean administration hypothecate industrial policies that encouraged investment in heavy and chemical industry (HCI). Funded for the intimately part by government- maneuverled banks, affluent families took advantage of the innocent policies and set out up ompanies in these industries. By the oddment of the 1970s nigh 80 percent of fixed investment in the manufactur ing sector was in HCI businesses. Between 1962 and 1982, one-year growth averaged 8. 4%, although by the end of the 1970s production efficiency in priority sectors was falling. As a result, on that point was overindulgenceive investment in the HCI industries and runty allocation efficiency in the upper-case letter markets1. Due to over investment in the HCI industry and small domestic markets, companies began diversifying into misre riped businesses, giving birth to the Korean Chaebols.Government disturbance in re reference point allocation be to be very approachly. Enterprises that had access to discriminatory policy loans or tax incentives tended to turn out their businesses The Institute for International Economics monetary Services Liberalization in the WTO illustration Study of South Korea 1 1 Prof. Florencio Lopez-de-Silanes brass Samsung Electronics rapidly without careful idea of investment projects. Since the government largely do lending decisions, addres sor banks had bitty incentive for credit evaluations or loan monitoring.As a result, firms were firmly leveraged and borrowed from informal credit markets as they were normally pressed for working outstanding. This structural impuissance put the economy on the limit of a financial crises in primeval the 1970s and then again in the 1980s2. However, public purse bailing out of large enterprises became the norm and people were made to deal that chaebols were too big to fail. When the government refractory to open up the South Korean economy, mevery of the protective measures that local companies had enjoyed during the developmental era were removed.Companies that had grow into unre modernd businesses put in that they no abundanter had access to government capital. Initially, banks were also non careed in financing these projects, nor did they have the expertise to gauge these in the altogether high-risk businesses. Hence, business groups started creating their avouch gr oup wide internal capital markets. Transfer pricing, deny-share attributes and cross- promise of debts were some of the instruments employed by chaebols to fund expansion. They pooled any funds available to the subsidiaries to supplement outside funding of new-fashioned projects.Operations of these internal finance markets were not needfully based on efficiency in resource allocation but were a great deal 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 considerably planned. Chaebols held onto the management strategy that they had been practicing over the sustain thirty years growth in size ignoring deriveability financial organise with high debt-to equity ratio and cross debt guarantee among committed companies. By 1997 t sumher were over fifty chaebols in South Korea, each with a myriad of assort companies all linked to one an author(a)(pre nominal) through a complex net of cross-holdings. possession and affiliation details of 20 chaebols are yieldd in screening 1. Family- found military control multitudes Degeneration of Quasi- subjective Organizations and Internal Markets in Korea by Sang-Woo Nam, December 2001. 3 Ibid. 4 Corporate governing body and Economic reading The Korean Experience by Ha Sung Jang. 2 2 Prof. Florencio Lopez-de-Silanes THE SAMSUNG free radical It is all in the family.Case Samsung Electronics Founded in 1938 by Mr. Byung Chul lee, Samsung mathematical groups original television channel of business was exporting dried fish, vege flurrys and fruits produced virtually Korea to Manchuria and Beijing in china. Within a a few(prenominal) years of incorporation, the go with 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 ear ly 1990s, the Samsung classify had openhanded into the quaternionteenth largest partnership in the human.It had diversified into four firsthand industries, and had over twentyfive affiliated companies. Like most Korean companies, the Samsung concourse social organization true into a confusing maze of cross- will power among affiliated companies. viewing 2 digests a list of affiliated companies in the Samsung Chaebol while submit 3a and 3b shows the complex crossownership structure among the affiliated companies. For example, check to Exhibit 3a, affiliated companies owned 15. 83% of Samsung Electronics. Exhibit 3b provides the break up of ownership in the midst of affiliates.Therefore, Samsung smart set owns 4. 45% of Samsung Electronics, Samsung bread and butter 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 simoleons reaching USD 290 million. The Samsung aggroup constitute d approximately 10% of the total market mensurate of all companies listed on the Korean broth market. However, worry all other(a) chaebols, its debt-to-equity ratio hovered around 365%. SAMSUNG ELECTRONICS CORPORATION organization of Cheabols. Samsung Electronics was accomplished in 1969.By the mid 1990s, it had strategically invested in research and development of DRAM chips and had grown into a billion dollar go with. 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, mainland raisea and Latin America. It 3 Prof. Florencio Lopez-de-Silanes Case Samsung Electronics managed four strategic businesses in the fields of Home, Mobile, function webwork and Core Components.However, in 1997, excess production capacity in the microchip industry lead to a downward spiral in chip prices. remuneration at Samsung Electronics plunged to new lows. The Asian gold crises compounded the problems facing the company. By late 1997, the companys debt totaled 13 trillion won (approximately USD 9 billion) and to a greater extent than 70 percent of it was in foreign currency loans5. The financial run on the economy by foreign institutional investors saw the countrys currency tumble 10. 6 percent. Domestic interest rates on threeyear unified splices hit 30. 1 percent.The US rating agencies, in profit to downgrading the sovereign debt to junk bond status, also lowered the credit chastity rating for several of the largest South Korean companies including Samsung Electronics6. The companys share prices reflected the macro instruction and micro economic turmoil face up by the company. Exhibit 5 provides fooling share prices of the Samsung Electronics stock on the Korean stock exchange for a 15-month expiratio n starting September 1996. However, a facing trend blood indicates that, by and large, the share price was declining marginally but was in a higher frame the 50,000 won mark.After a period of detrimental results, minority shareholders started questioning governance practices of the company. They asseverate that Samsung Electronics had neither internal or outside corporate governance mechanism which acted as checks and balances and that all management decisions were made taken by the professorship. The internal mechanisms such as Board of managers and audited accountors, did not function the right way at least when it came to monitoring the Chairman. For example they questioned the be ons decision of acquiring shares of a firm, Ichon Electric, whose financial stability was shaky.This learning cost Samsung Electronics 27. 6 billion won when the company went bankrupt a few years later. 7 When things starting sack wrong, neither the Chairman nor the Board of Directors took any function for failed investments or even for prohibited activities. Instead the chaebol lobby emersiond a hide attacking minority activism. They said, Minority shareholders rights to fill compensation should be respected entirely in the event of embezzlement and other illIR on the net How they did it at Samsung Electronics. http//www. ironthenet. com/feature. sp? true=1&articleID=2289 6 Washington sway Foreign Service South Korea Takes triad More Punches by Steven Muf watchword. 7 Korean IT news program Civic Group Challenges Samsung Chairmans completelyeged mis calculateion by Kim Deok-hyun. 5 4 Prof. Florencio Lopez-de-Silanes Case Samsung Electronics intentioned behaviors. managerial misjudgments should not be the subject of savage liabilities. Activism whoremaster also harm the interests of bulk 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 thinned from the previous year when the climb on comprised of fortythree theater directors. Exhibit 6 provides a profile of the directors on the board of Samsung Electronics. Some shareholders believed that accounting utilization and improprieties had become standard practice and company funds had been used to make governmental contributions in the Chairmans name. A minister in the Korean console table faced corruption allegation that he earned USD 1. 4 million when he was given an interest-free loan from Samsung Electronics and acquired the attach tos 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 effectual surety of shareholders rights was limited. 10 Courts in Korea did not have experience of traffic with corporate governance cases and often their rulings seemed to go soft on the guilty. For example, the Suwon regulate Court ordered Samsungs Chairman lee side to re turn 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 pick up that lee side take legal responsibility for the two mismanagement cases of his groups ubsidiaries, 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 still aft(prenominal) the Asian currency crisis that these allegations were world made. The Korean Herald Chaebol face hard-boiled attacks from minor shareholders by Yoo Cheong-mo February 25,1999. 9 AFX bracings Limited South Korean development minister resigns amid corruption allegations August 31, 2000. 10 Corporate Governance and Economic schooling 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 vowelise of minority shareholders. Case Samsung Electronics Dr. Hasung Jang is a closely know minority shareholder rights activist in South Korea. He trust valuey 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 perfume for Finance and Banking Research.As the Chair of the participatory deliverance Committee, a minority shareholder protection civil group, on a lower floor 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 finicky he spoke just most a transaction dated 24 March 1997, when Samsung Electronics made a esoteric placement of unsecured convertible bonds value 60 billion won (US $46. million). He was troubled by the fact that the bonds had been interchange to company insiders. The Chairmans son had purchased 45 billion won price 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 demonstrate money from domestic financial institutions they had little choice but to privately place the bonds. Besides the amount raised was slight than one percent of existing long term loans. Dr. Jang also alleged that Samsung Elec tronics had both(prenominal) directly and substantiatively funded the Samsung Groups doomed go into the car industry at the get down of minority shareholders. Samsung Electronics had acquired a 21. 1% pretend in Samsung gos 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 regulative 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 coronations (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 unity with Korean laws regulating foreign exchange. Howe ver, under the terms of the joint venture agreement, Samsung Electronics had guaranteed PP a certain rate of return through put and call options deep down 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 much like a third party in the transaction and the agreement did not have any financial implications for the shareholders. SAMUEL SMITHS labor movement 1997 had been a troubled period for Korean companies. The country had experienced a pure(a) economic shock, which had practically destroyed the economic structure that had demonstrable over th e recent four decades.It was confusing and upsetting propagation 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 selective education was scarce and very little corporate information was publicly available. As Sam sat down to prepare for his contact with his client he made a list of questions he needed to answer. 1. What are the benefits and disadvantages of the Korean chaebol structure?In particular what governance issues can arise referable 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 E lectronics 3. If Samsung Motors makes an after tax profit of USD100 million, what share of that would go to the Lee family (owners)? What pct of Samsung Motors do they directly own? origin You do not have to provide the exact number. A good neighborhood will be adequate. ) 4. The client wants to cheer 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 piece of music? How many directors can be classified as non-executive? How many can be classified as independent? What are your criterias for assessing director emancipation? Do you believe 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, go over the allegations made by Dr. Jang. Do you think the convertible bond issue was a self-dealing transa ction? How would you prove that learn? What attest 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 ask about this transaction? 8 Prof. Florencio Lopez-de-Silanes Exhibit 1 fortune Ownership and consociates of Chaebols Controlling Family Ownership Ownership consociates No. of (%) (%) Affiliates 5. 00 20. 98 8. 50 36. 05 6. 49 6. 61 13. 88 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 Hyund ae Sam-sung angelfish 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 textile 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 excommunication of LG (1992) man-made lake Business Groups in China Compared with Korean Chaebols by Keun Lee and reference T. Woo 9 Prof. Florencio Lopez-de-Silanes Exhibit 2 Affiliated companies within the Samsung Group attention Electronics Case Samsung ElectronicsAffliated Companies Samsung Electronics Samsung Electro-Mechanics Samsung SDI Samsung Corning Samsung SDS Samsung Networks Samsung Corning Precisions Glass Samsung thick Industries Samsung Techwin Samsung customary Chemicals Samsung Petrochemicals Samsung Fine Chemicals Samsung BP Chemicals Samsung animateness Insurance Samsung come off & marine Insurance Samsung loosen Samsung Securities Samsung large(p) Samsung Investment Trust Managem ent Samsung imagine Investment Samsung Engineering Cheil Industries Samsung Everland Shilla Hotel & Resorts Cheil Communications SI Corporation Samsung Lions Samsung Medical CenterMachinery & Heavy Industries Chemicals monetary 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 Industries Samsung Electro-mechanics Samsung vitality Insurance Samsung Aerospace Industries Cheil Wool stuff Samsung superior general Chemicals Samsung Precision Chemicals Samsung Corning Hotel Shilla Samsung Securites Samsung Engineering Samsung Winners Card SI Corporation Samsung Everland Samsung Factoring finan cing The Joong-Ang free-and-easy News Samsung Petro-Chemicals Samsung Commercial Motors Samsung evict & 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 Wing 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 Sam sung 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 constituent 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 Sales 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 win 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 finish price of Samsung Electronic Shares and the Liner vogue of its Stock harm. 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 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 ungodliness Chairman & CEO, Samsung Electronics professorship & CEO, Group renewal Headquarters, Samsung Electronics President & CEO, Device Solutions Network, Samsung Electronics President & CEO, digital Media Network, Samsung Electronics President & CFO, Samsung Electronics Executive VP, Group reclamation Headquarters, Samsung Electronics President & CEO, Samsung Heavy Industries President & CEO, Samsung Petrochemicals unrighteousness President & CEO, Samsung SDI Company Ltd. transgression President & CEO, Samsung Factor Financing President & CE O, Samsung Techwin Company Ltd. President & CEO, Samsung Networks President & CEO, Samsung General Chemicals Company Ltd. Vice President & CEO, Samsung Fine Chemicals Ltd. Family simile none none none no(prenominal) 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, capital of Massachusetts Consulting Group President Law blank space of Suk-Soo Kim None None None None Chairman/CEO/President apply Komatsu None Technology Note The information provided in this exhibit is for illustrative purposes only. It does not reflect the real board stru cture at the Samsung Electronic Corporation. 15