Samsung scion to take board role at flagship amid Note 7 shock

[September 12, 2016]  By Se Young Lee

SEOUL (Reuters) - The Samsung Group's de facto leader and heir apparent is poised to join the board of crown jewel Samsung Electronics Co Ltd, a step towards formalizing his role as head of the conglomerate as it reels from a massive smartphone recall.

The world's top smartphone maker announced on Monday that its board nominated 48-year-old Jay Y. Lee as a director. He has been the group's key decision-maker since his father and group patriarch Lee Kun-hee was hospitalized after a May 2014 heart attack.

Samsung said it was the right time to put him on the board "to allow him to take a more active role in the company's strategic decision-making".

The announcement came on the same day that investors wiped off 17.5 trillion won ($15.7 billion) from the market value of Samsung Electronics as the recall of its fire-prone Galaxy Note 7 smartphones takes its toll.

Also on Monday, Samsung Electronics announced the $1.05 billion sale of its printer business to HP Inc, a move that furthers the South Korean firm's efforts to exit non-core businesses.

The younger Lee was already vice chairman of Samsung Electronics but did not sit on its board. Investors will vote on his nomination at a shareholder meeting on Oct 27.

Samsung said its board of directors opted not to wait for the company's annual shareholder's meeting next year.

"By taking an official position as a member of the Board of Directors, Mr. Lee is demonstrating his commitment to the future of the Company and to delivering benefit to the Company and its shareholders," the company said in a statement.

SUCCESSION

Taking a director position at Samsung Electronics will give Lee greater room to operate in managing the company's affairs but also put him under greater scrutiny for the company's performance.

"He's already been involved in a lot of the strategy and the decisions, but it's a step that he takes a more formal, official role in the company," said a person familiar with the matter, adding that the decision was unrelated to the Galaxy Note 7 issues.

"Idea of Jay taking a board seat is something that has been deliberated on for some time. Rather than wait until next year’s annual meeting in March, the thinking was Samsung has a lot of things coming, so sooner rather than later."

Analysts and investors said the younger Lee taking a board seat may not immediately affect the company's business operations but was a welcome development as it signals his official role as leader and the willingness to take appropriate responsibility.

Jay Y. Lee, the only son of Samsung Electronics chairman Lee Kun-hee and the company's vice chairman, attends the 2015 HO-AM Prize ceremony which was established by Lee Kun-hee, in Seoul, South Korea, June 1, 2015. REUTERS/Cho Seong-joon/Pool

"Samsung Group appears to have decided that it would not be appropriate to delay further given that it is unlikely for Chairman Lee Kun-hee to return," said Kim Sang-jo, an economics professor at Hansung University.

"The longer this decision is delayed, the longer the absence of somebody who can take the responsibility and act in response to issues such as the Samsung C&T merger and the (Note 7) recall issue."

NOTE 7 RECALL

On Monday, Samsung's shares fell 7 percent, their biggest daily percentage drop in more than 4 years after the tech giant told customers affected by the recall to switch off and return their new Galaxy Note 7 phone as soon as possible due to fire-prone batteries.

The recall is unprecedented for Samsung, which prides itself on its manufacturing prowess. Some analysts estimate the firm might lose $5 billion won worth of revenue after accounting for recall costs. The company had said it sold 2.5 million Galaxy Note 7s that need to be replaced.

Analysts said the recall could torpedo Galaxy Note 7 sales and have a lasting impact on the $208 billion company's brand image, which could derail a recovery in its smartphone market share against rivals like Apple Inc.

"Some said initially the Galaxy Note 7 could be the best smartphone ever, but now it's possible the phone will go down as the worst ever," IBK Securities analyst Lee Seung-woo said, predicting weak sales in the fourth quarter.

(Reporting by Se Young Lee; additional reporting by Joyce Lee and Nataly Pak; Editing by Stephen Coates and Susan Thomas)

[© 2016 Thomson Reuters. All rights reserved.]

Copyright 2016 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.