Samsung Corporate Governance Analysis

This assignment analyzes Samsung's corporate governance structure, focusing on its principles, risk management, and ethical conduct. It examines the impact of recent scandals, particularly the Galaxy Note 7 issue, on the organization's reputation and financial performance. The analysis utilizes Carroll's Pyramid of CSR to evaluate Samsung's adherence to social responsibility standards and provides recommendations for improvement.

Running head: CORPORATE GOVERNANCE AND ETHICS
Corporate Governance and Ethics
Name of the student
Name of the university
Author note

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Table of Contents
Introduction.................................................................................................................................................2
Board structure...........................................................................................................................................3
Samsung Galaxy Note 7 scandal..................................................................................................................4
Samsung Galaxy Note 7 stakeholders..........................................................................................................6
Australian Securities Exchange Guidelines..................................................................................................7
Application..................................................................................................................................................9
Carroll’s pyramid of corporate social responsibility..................................................................................10
Conclusion and Recommendation.............................................................................................................11
References.................................................................................................................................................13

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Introduction
Samsung is a multinational company which is based in South Korea. The headquarters of the
company are located in Samsung town, Seoul. The company comprises of various affiliated
businesses. The company is the largest South Korean organization and most of its businesses are
carried on under the brand name of Samsung. The company had been founded by Lee Beyung
Chul in the year 1938 in form of a trading company. The organization expanded its business into
area such as insurance retail securities and food processing in the next three decades. The
electronic industry was entered upon by the company in the late 1960 whereas shipbuilding and
construction was entered up on in 1970s. The subsequent growth of the company was derived
from these areas of operation. The company has been separated into four groups following the
death of its founder. The company serves around the whole world. It deals with product such as
consumer electronics, medical equipment, ships, telecommunication equipment, home appliances
and semiconductors. The company also provide services such as advertisement, hospitality,
Communication Technology, Financial Services and retail. There around $500,000 working for
Samsung all around the globe.
The purpose of this paper is to discuss the corporate governance and ethics in relation to the
organization. The paper identifies the board structure of the organization and then discusses the
scandals in which the organization have been involved. The paper identifies the stakeholder of
the company along with the discussion regarding guidelines provided by the Australian
Securities Exchange in relation to corporate governance and then applies the guidelines to the
current issues of the organization.

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Board structure
The board of directors of Samsung Electronics comprises of five independent directors and four
executive directors. With respect to article 542-8 provided in the Commercial Act the majority of
the board is constituted by the independent directors. The Board comprises of experts from
different fields so that they can direct their skills towards strategic and efficient decision making.
Source: Samsung.com (2017)
Samsung Organization Structure

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Source: Samsung.com (2017)
Samsung Galaxy Note 7 scandal
A big scandal had been faced by the organization in October 2016. The main reason of the
scandal was that the organization rushed to launch their new mobile product which was Samsung
Galaxy Note 7. As stated by the article from Business Insider Australia it was accepted by the
organization that the design of the battery in relation to Samsung Galaxy Note 7 was at fault
(Reporters 2017). This fault resulted in a major blow for the organization and was the most
talked about issue in the smartphone industry in 2016. As the design of the smart phone was
defective specifically related to its battery a few of the devices were subjected to overheating and
therefore exploded. The explosion in addition took place in very sophisticated place such as
aircrafts. Many individuals were also injured as the phone exploded while they were using it.
After hearing several news related to the explosion of the smartphone the organization took a
decision to recall all the smartphones of the model from the market. However the issue was

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further escalated when even after recalling the products and refurbishing the phones with new
batteries which was supposed to be fix the problem the problem of overheating and explosion in
the mobile phones continue to haunt the organization. The reputation of the organization which
was very high after the launch of Samsung S6 edge and S7 edge took a huge hit in the
smartphone industry.
Hit by such reputational loss the decision makers of the organization in order to ensure that the
reputation of the organization is refurbished decided to recall all the smart phones on the market
one more time. This step was also taken in order to avoid any further accidents and complaints
related to the smart phone from direct consumers. This decision was not financially feasible for
the organization. The recall of the mobile phone from the market cost at the organization a huge
revenue of £4.4 billion. The recall was made by the organization at a very critical time because
just a week before Apple has launched its latest smartphone known as iPhone 7 and 7 plus in
September when Apple conducts its annual launch event. A gamble was taken by Samsung that
positive reviews in relation to the smartphone which included the feature of iris reading
Technology would enhance the sale off the device. There was huge expectations among the
agents of the organization who had relied on the profits made by the organization in the previous
year with the help of its smartphones and the slowdown of sales for iPhones. The shares of the
organization Rose by 1.4% however after the scandal the shares of the organization declined by
3.4%. The scandal raised significant doubt in the minds of the consumer whether to purchase any
other smartphone manufactured by the organization or not as there was a risk that they might
also have the same default.

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Source: Reporters (2017)
Samsung Galaxy Note 7 stakeholders
• All of Samsung customers from loyal to new, will be affected by these poor decisions. It
will take allot of money to earn their trust.
• Samsung SGI is an affiliate and was the main battery supplier for Samsung Electronics
up until this mess will now need to regain its footing.
• Amperex Technology Limited is the manufacturer of the replacement batteries that also
failed.
• Phone carriers like At&t, Verizon and T-Mobile have been missing out on projected
revenue.
• Consumer safety associations and organizations like the U.S Consumer Product Safety
Commission are stakeholders in the Note 7 recall.

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• Apple Inc. is Samsung’s only true competition and the iPhone 7 was preparing for the
holiday rush, they also had an interconnected supply chain. This made Apple one of the
largest stake holders behind the Samsung shareholders, who would need to clean up this
mess and recoup their profits
Australian Securities Exchange Guidelines
The Australian security exchange sets out eight principles for organization towards good
governance. Firstly the guidelines state that a solid Foundation with respect to management and
oversight has to be laid by all organizations. This means that every organization has to establish
and disclose the responsibility and roles of each member of its board and Management along
with the procedure for evaluating and monitoring their operations. The board of directors are the
brains of any organization and their decisions are the decisions of the organization therefore how
they perform their respective responsibilities and duties have a significant effect on the growth of
the organization.
The council provides a recommendation that the board of any company has to be structured in
such a way where value is added to the organization. The board of every organization should be
of an appropriate size and must contain people having diverse skills so that they can manage the
organization successfully by deploying their skill and diligence. If an organization does not have
an appropriate composition of board along with people from diverse areas of knowledge it would
not be able to handle different situations which an organization is subjected to in relation to its
operations.

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In addition the ASX strictly provides that it is the responsibility of all organization to act in a
ethical and responsible manner. The organization is operated through its directors and therefore
the directors are required to observe the principle of ethics and morality in all the decisions with
respect to the organization.
Safeguarding the integrity with respect to corporate reporting is also a recommendation which
has been provided by the ASX. Directors of an organization must take the process of Corporate
reporting seriously and give utmost priority to its integrity. Independent and fair review of the
reporting process have to be ensured by the directors of the organization. The director must be
held accountable towards safeguarding the integrity of the organizations corporate reporting.
It is the duty of all organization according to the ASX to make balanced and timely disclosures
to the respected authority and the public. An organization is there for required to make timely
and balance disclosure in relation to all matters which concerns the organization which would
have a material effect on the value and price of its securities as expected by a reasonable person.
The organization must keep appropriate respect to the rights of all shareholders. The process
must be carried out by providing them relevant information along with facilities which would
allow the shareholders to conveniently exercise the rights provided to them.
One of the most important recommendation which has been provided by the ASX is in relation
to identification and management of risk. The council provides that it is a responsibility of all
organizations to bring into existence a strong risk management structure and periodically analyze
how effective the structure is in relation to the identification management of risk.
Lastly, the council recommends all organization to responsibly and fairly remunerate the
directors as well as the employees. The organization must remunerate the directors sufficiently

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so that they are able to attract high quality directors and motivate other offices of the
organization to make their interest consistent with the interest of the organization by creating
value for the shareholders (Council 2007).
Application
Through the application of the above discuss principles in relation to the scandal Samsung has
been in during the last year it can be provided that Samsung missed out on various
recommendations made by the ASX. Firstly as identified above Samsung has an efficient Board
which consists of four independent directors and four executive directors who have expert
knowledge in the respective fields. However the organization failed to identify and manage risks
properly which led to significant financial as well as reputational loss for the organization. In
case there was a proper risk management Framework within the organization then the risk related
to the smartphones would have been identified in its early stages and such a big Scandal would
not have taken place. In addition when the smart phones have been recalled for the first time, a
proper risk identification and management system would have been ensured that they are not be
launched into the market until and unless all problems related to the smartphone have been
addressed appropriately. However due to the lack such a structure within the organization in
there were faulty decision taken by the directors which led to decline in the share price of the
organization.

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Carroll’s pyramid of corporate social responsibility
Source: Carroll (2016)
Carroll had organized various corporate social responsibilities in form of a 4 layered pyramid
model which was known as the pyramid of responsibilities. The four different responsibilities
were categorized into ethical, legal, economical and philanthropic responsibilities (Ojo and
Rosati 2016). This part of the paper analyses Governance of Samsung based on Carroll’s model.
In relation to philanthropic responsibilities the organization has launched several appliances and
devices through there different divisions known as consumer electronics, IT and mobile
communication and device solutions. Through this the organization is attempting to contribute
resources towards the community to enhance the quality of life style and play a role in
community development. The organization also indulges in various Charity events and ensures
the maintenance of environment in order to comply with its corporate social responsibilities.
The organization ensure that ethical responsibilities are significantly addressed by its
management. For the purpose of addressing ethical responsibilities Samsung have initiated four

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programs. These programs ensure that the organization operates as a responsible corporate
citizen. The organization has an audit system which ensures that it complies with all auditing
requirements and no corruption takes place within the organization. Organization along with the
regular auditing system also has a team of Cyber auditor's. The organization carries out anti
corruption education program within it with respect to its employees and officers. The
organization also has an auditing committee to identify and deal with any corruption within the
organization.
The organization have developed five principles to ensure that they comply with all legal
responsibilities. The organization strives to comply with all ethical standards and legal
provisions. The organization maintains a clean organization culture. It ensures that appropriate
respect is provided to shareholders, employees and customers. The organization also acts
towards the protection of the environment and the health and safety of its employees and
consumers. The organization promises to act as a responsible corporate citizen in relation to its
operations.
Organization through its board of directors and financial Advisory Committee always tries to
ensure that it operates in a way so as to generate profit in long term. The organization also strives
to create long-term value to contribute towards a sustainable global economy as well as the
development of its stakeholders.
Conclusion and Recommendation
According to the above discussed facts about Samsung it can be stated that it is a very large
organization which operates by incorporating diverse cultures into it. The organization have been
recently subjected to a significant scandal related to Samsung Galaxy Note 7. There was a

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mistake in relation to the decision making authorities of the organization as they fail to identify
and manage the risk which arise out of the faulty design of the smartphone. However the way in
which the organization is governed can never be doubted as the organization came back strongly
against its reputation and financial losses and launched successfully Samsung S8 which became
a huge success in the market. The Governance of the organization complies with the model
provided by Carroll and therefore addresses all aspects of social responsibilities.
Recommendations
It is recommended for the organization that it establishes a strong Risk Management Committee
which would be able to identify risky situations before the hamper the organization and manage
such situation if they have offered.
The Risk Management Committee should comprise of independent directors so that it functions
appropriately without any interference.
The organization is doing well in the smartphone market and therefore it must not rush its mobile
launches and wait until they have cleared all security related issues.

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References
Carroll, A.B., 2016. Carroll’s pyramid of CSR: taking another look. International journal of
corporate social responsibility, 1(1), p.3.
Council, A.C.G., 2007. Corporate governance principles and recommendations.
Ojo, M. and Rosati, P., 2016. Innovating Carroll's Pyramid of Corporate Social Responsibility
(Presentation Slides).
Reporters, T. (2017). Samsung apologises for Galaxy Note 7 and corruption scandals. [online]
The Telegraph. Available at: http://www.telegraph.co.uk/technology/2017/03/24/samsung-
apologises-agm-galaxy-note-7-corruption-scandals/ [Accessed 30 Oct. 2017].
Samsung.com (2017). [online] Available at:
http://www.samsung.com/us/aboutsamsung/investor_relations/corporate.../boardofdirectors/
[Accessed 30 Oct. 2017].
Samsung.com. (2017). About Samsung - SAMSUNG IR - Corporate Governance - Ownership
Structure. [online] Available at:
http://www.samsung.com/us/aboutsamsung/ir/corporategovernance/ownershipstructure/
IR_OwnershipStructure1.html [Accessed 30 Oct. 2017].
Samsung.com. (2017). Stakeholders. [online] Available at:
http://www.samsung.com/us/aboutsamsung/investor_relations/corporate_governance/
corporatesocialresponsibility/downloads/Stakeholder.pdf [Accessed 30 Oct. 2017].