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Breakingviews

Breakingviews - Samsung chairman bequeaths a tainted empire

Samsung group chairman Lee Kun-hee commemorates 30 years of their semiconductor business in 2004. Samsung Electronics/Handout via REUTERS.

HONG KONG (Reuters Breakingviews) - Lee Kun-hee leaves behind an impressive, albeit deeply flawed, empire. The Samsung chairman, who transformed his father’s noodle-trading business into a $355 billion smartphone and chipmaking colossus, has died at 78. The second-generation leader’s mark on Korea Inc will endure, but so do scandals that threaten the family’s grip on power.

To make an emphatic point about quality more than two decades ago, Lee set ablaze 150,000 of his company’s faulty mobile phones and fax machines in front of gathered employees. The bonfire embodied a relentless drive to remake Samsung into a renowned international brand alongside General Electric and Sony. It also underscored his abrasive and exacting management style, which included long meetings and pointed directives such as “change everything except your wife and children”.

After successfully putting Samsung on the map, Lee stepped down in 2008 following a bribery and tax evasion conviction, alongside allegations that he helped his children buy shares on the cheap. By then, the conglomerate spanned technology, insurance, shipbuilding and more. Lee’s controversial investments in memory chips and mobile handsets helped pave the way to challenge the dominance of Intel and Apple.

Not much should change operationally for Samsung. Lee had been incapacitated since suffering a heart attack in 2014. His son Jay Y. Lee has been quietly leading from the wings, overseeing new investments in smart-cars, next-generation 5G telecommunications, biotechnology and more.

The younger Lee also has been embroiled in legal troubles. Just two years after he was released from prison over his role in a bribery mess that led to the impeachment of South Korea’s then-president, Jay Y. is on trial again over a controversial 2015 merger between two Samsung affiliates that helped him assume greater control of Samsung Electronics.

At issue is a tangled web of circular and cross-shareholdings of more than a dozen company affiliates. The structure allows the family to exert control with small direct stakes. Lee, for instance, held just 4.2% of Samsung Electronics, while Jay Y. owns 0.7%. It’s unlikely that the heirs, who don’t even have board seats in many Samsung companies, can lead without an inheritance, which will be heavily taxed. Regulators are also mulling new restrictions on opaque interrelated deals. Along with an incredible corporate achievement, Lee bequeaths a giant governance mess.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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