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 illustrate the effective or ineffective governance of an organization.

Prof. Florencio Lopez-de-Silanes INTRODUCTION

Case: Samsung Electronics

Prior to the Asian currency crises, South Korea was an investment destination for several institutional investors and emerging market funds. Throughout the early nineties the country experienced an economic boom. South Korean conglomerates, locally know as chaebols, had diversified into various industries from cars to microchips. Samsung Electronics …show more content…

It had diversified into four primary industries, and had over twentyfive affiliated companies.

Like most Korean companies, the Samsung Group structure developed into a confusing maze of cross-ownership among affiliated companies. Exhibit 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 stock market. However, like 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 1990’s, it had strategically invested in research and development 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 1990’s, Samsung Electronics had 24 production subsidiaries, 35 sales