Samsung Shareholders Advised to Block Nomination of Heir Apparent

Samsung Shareholders Advised to Block Nomination of Heir Apparent

SEOUL, Oct. 24 (Yonhap) -- A South Korean proxy-advisory firm has advised shareholders of Samsung Electronics Co. to block the nomination of Vice Chairman Lee Jae-yong to the electronics giant's board of directors, in what is seen as the first voice of opposition against Lee's nomination.

In a letter sent to shareholders last Friday, Sustinvest Inc. claimed that Lee is not qualified for the job because he has benefited from inter-affiliate transactions at Samsung Group.

Inter-affiliate transactions are common at South Korea's business conglomerates, but such deals are often criticized for benefiting insiders at the expense of better deals with outside firms.'

The 48-year-old Lee, the only son of the ailing Samsung Electronics Chairman Lee Kun-hee, was nominated to join the board last month and his nomination will be subject to approval at the shareholders' meeting Thursday.

In the letter, Sustinvest said Lee has a "reason for disqualification as a director of the board" because he is a "beneficiary" of inter-affiliate transactions among Samsung affiliates, particularly for Samsung SDS Co. and Samsung C&T Corp.

Such transactions "undermine the corporate value because they fundamentally exclude the possibility of better transactions," it said.

In case of Samsung SDS, Sustinvest said inter-affiliate transactions account for more than 85 percent of its annual revenue last year.

Deals with Samsung Electronics have accounted for about 35 percent of annual sales at Samsung SDS over the past decade, the proxy-advisory firm said.

Ryu Young-jae, chief executive of Sustinvest, said it would be "positive" for Lee to join the board because it allows the heir apparent to take formal responsibility for his decisions.

However, Ryu said a board of a company should meet its ethical standards, besides having specialty and management capability.

The advisory by Sustinvest came after a major shareholder of Samsung Electronics and foreign proxy-advisory firms voiced support for Lee's nomination.

Last week, South Korea's National Pension Service (NPS), the single biggest shareholder of Samsung Electronics, said it will vote in favor of Lee's nomination. The NPS holds an 8.38 percent stake in Samsung Electronics.

Institutional Shareholder Services, a proxy-advisory firm, is also said to have sent a report to major shareholders of Samsung that it recommended shareholders approve the nomination.

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