During his 21-year rule, Lee turned Samsung Electronics, the group’s flagship, into a global technology leader, raising sales by a factor of nine, profits by 53. He made Samsung bigger than Sony, a victory for South Korea over its old colonial rulers in Japan that made Lee a national hero, particularly for Koreans of a certain age. He created a conglomerate that accounts for 18 percent of South Korean GDP. In his resignation speech, he apologized for failing to deliver on a promise to bathe South Koreans in the reflected glory of Samsung’s global status as a “first-class business.” His departure suggested to many that South Korea’s maturing democracy would no longer allow good numbers to justify any business practices.
But we’ve seen this forecast many times before, ever since the cracks in the family model became apparent in the Asian financial crisis of 1997–98. The first came after the early collapse of Daewoo and the flight of its founder, but here we are 10 years later, and the Lees are only now exiting Samsung—presumably to be replaced by professional managers, more open and democratic corporate governance and all the other reforms foreseen so often. With Lee’s son, Jay-yong—once his heir apparent as Samsung chairman—now packed off to emerging markets and reportedly told he will have to work his way back to the center of power, experts are predicting (again) hard times for scions. This will strongly affect father-to-son successions at other Korean conglomerates, notably Hyundai Motor, they say. “Children of top tycoons cannot automatically assume leadership,” says Kim Seung Hyun, an analyst at Woori Investment & Securities. “They have to prove themselves first.”
This may happen, slowly: Lee really had no choice, dogged as he was by whistle-blower charges of bribes to politicians, prosecutors, bureaucrats and journalists, dodging taxes on $4.5 billion in personal accounts and a shady deal to hand over control of the group to his son. Lee was forced to disband the strategic-planning center that was the key to his family’s control, and to the company’s successes. Without the Lees, the subsidiaries in such diverse fields as electronics, construction and insurance will be run independently by professional managers. “True reform at Samsung may take a long time,” says Youn Gang Heum, a business-management professor at Seoul’s Yonsei University. “But there will be no turning back in Samsung’s change.”
There are, however, a couple of obvious problems. It’s increasingly old-school to assume that public companies are better run: many of the best companies in both America and Europe are family-controlled, and the younger Lee is a Harvard-educated executive with broad respect in at least some global business circles. So it’s not clear that Samsung is better off without the Lees. “Samsung owes much of its success to Lee’s wise investments in semiconductors and flat television screens,” says Kim at Woori. “Despite their governance problems, Korea’s family-run companies tend to be effective and profitable.”
That’s if Samsung is as cleanly divorced from the family as most now assume. Lee Kun-hee can still run Samsung behind the scenes, as his managers are not used to running things on their own. In fact, he now holds bigger stakes in key Samsung companies as a result of the conversion of his hidden money into his real accounts. “Professional managers in Korea are afraid of taking responsibilities,” says Kim Sang Jo, a business professor at Hansung University in Seoul. “They tend to turn to owners when it comes to big decisions.” Major investment and personnel moves will have to be decided by Lee, making Samsung’s changes “symbolic rather than substantial.”
In the past, Korean tycoons have resigned after scandals at companies like SK and Doosan, later to return after the scandals were forgotten. This time may be different—since the ’90s, civic and media watchdogs and activist shareholders have become a much more vibrant part of the Korean business scene. And they may not allow disgraced leaders a second chance, even those with a performance record like Lee’s. Whether that’s good or bad for Korean business, only the numbers will tell.
