hankyoreh

Lee Jae-yong, the newly appointed chairman of Samsung Electronics, answers questions from the press about his promotion as he leaves the courthouse following an appearance at a trial for charges he faces of accounting fraud. (Kim Myoung-jin/The Hankyoreh)

After serving as vice chairman for 10 years, Lee Jae-yong has succeeded his father Lee Kun-hee as chairman of Samsung Electronics. Lee has been acting as the de facto chairman of Samsung since his father fell ill in 2014. Now, he has inherited the position of chairman.

Lee Jae-yong was appointed by Samsung Electronics’ board of directors to become the highest ranking official of the company 31 years after he first started working at the tech giant in 1991. During those 31 years, Samsung grew into Korea’s top domestic corporation, but some have raised questions about Lee’s management abilities.

In 2000, Lee launched the so-called e-Samsung project with support from the Samsung Group. He established various fledgling tech companies such as e-Samsung, e-Samsung International, SECUi Corp., Gachi.net and held a large amount of their shares. However, as the venture craze cooled and the performance of these companies became sluggish, he sold his stake to Samsung affiliates, essentially handing over losses brought about by management failure to Samsung affiliates.

Lee has been the de facto leader of Samsung Group since 2014. In 2018, he announced that Samsung would “invest 180 trillion won and hire 40,000 people,” and in 2019 he announced the “Semiconductor Vision 2030.” When it comes to system semiconductors, also known as logic chips, in the first quarter of this year, Samsung’s market share was 29%, which means it did manage to narrow the gap between Sony’s market share. But its success remains an exception, not the rule.

Lee Chang-min, a professor of business management at Hanyang University, said in a telephone interview with the Hankyoreh that “since Chairman Lee’s business management abilities have never been verified, there are some in the market who are anxious.”

Lee Kyung-mook, a professor of business management at Seoul National University, commented, “After the merger of Samsung C&T, the group’s business portfolio hasn’t been properly adjusted.” He added that Lee Jae-yong will “need to demonstrate his management skills going forward.”

The new chairman has also faced criminal punishment.

Lee was first arrested in February 2017 for his involvement in the influence-peddling scandal that brought down former President Park Geun-hye, also known as the “Choi Soon-sil gate” case. Lee was charged for paying 43.3 billion won in bribes to Park Geun-hye and Choi Soon-sil to promote the controversial merger of Samsung C&T and Cheil Industries, a move that would put Lee Jae-yong one step closer to acquiring the management rights of the Samsung empire.

Lee was let go on probation after a retrial in February 2018 but then was re-arrested in January 2021. He was eventually released on parole in August of that year, seven months later.

Then, in August of 2022, Lee received a special presidential pardon and reinstatement and was freed from employment restriction measures.

However, the image of chaebols having overly cozy relations between politics and business by spending corporate money for personal interests lingers.

In reality, a considerable amount of Lee’s accumulated fortune was gained through expedient means. For instance, Lee acquired Samsung Everland (currently Samsung C&T) convertible bonds in 1996 and Samsung SDS bonds with warrants in 1997 using 6.1 billion won given to him by his father.

After this, Samsung SDS went public, and Samsung Everland merged with Cheil Industries and then re-merged with Samsung C&T. Lee made trillions of won in profits throughout the process.

According to Solidarity for Economic Reform (SER), as of the end of June 2021, the value of Lee’s stakes in Samsung Electronics, Samsung C&T, Samsung Life Insurance, Samsung SDS, Samsung Engineering, and Samsung Fire & Marine Insurance was worth 15.56 trillion won (over US$10 billion).

Of this, 10.58 billion won (68.01%) is estimated to have increased in value through expedient means such as asset tunneling and misappropriation of company opportunities, rather than through direct acquisition or inheritance.

While Samsung Electronics saw a slight increase in its sales for the third quarter of this year, its operating profit still fell by 31.39%. Many predict that fourth-quarter earnings will be even worse since semiconductor memory prices continue to fall. Given all this, Lee now has the task of overcoming this difficult business environment and presenting a long-term vision for his company.

In May, coinciding with the inauguration of Yoon as president, Samsung Electronics announced plans to invest 450 trillion won (360 trillion of which domestically) and create 80,000 new jobs over the next five years.

However, revising the plan has become inevitable given the rapidly changing external environment concerning issues such as US sanctions on semiconductors, inflation and declining demand.

Unlike his father Lee Kun-hee’s “New Management” declaration, Lee Jae-yong was unable to present a vision for the company as he took on the position of chairman on Thursday.

Other important tasks to complete include following through with the promises made by Lee in his May 2020 public apology, including no fourth-generation succession and ending union-free management.

In order to be able to follow through with the promise that there will be no fourth-generation succession at Samsung Group, the governance structure and management system of the company must be reorganized to center management on professional managers and the board of directors.

Currently, the legal compliance oversight committee of Samsung Group has commissioned the Boston Consulting Group to devise a governance restructuring plan for the conglomerate.

“The reorganization of the governance structure is planned to take about ten years, so we have to start now. It is a problem that there has yet to be any mention of this at all,” Lee Chang-min says.

Another issue that still needs resolving is that of Samsung Life Insurance’s stake in Samsung Electronics. There is a high possibility that the criteria for evaluating the value of Samsung Life Insurance's stake in Samsung Electronics, which has been criticized for being “preferential treatment,” will change.

Currently, Samsung Life Insurance's stake in Samsung Electronics is not a problem regarding the acquisition cost, but if the asset assessment standards are changed to reflect market value, as is being proposed by the opposition Democratic Party, Samsung Life Insurance will have to sell a significant portion of its stake in Samsung Electronics.

If things turn out this way, then one of the pillars holding up the reign of Samsung Electronics – be it Samsung C&T or Samsung Life Insurance — will come tumbling down.

Meanwhile, achieving harmony and co-existence between labor and management are also challenges.

Lee Jae-yong's promise of guaranteeing the basic three labor rights has still not been realized. Instead, it was recently revealed that Samsung Electronics Sales Co., a subsidiary of Samsung Electronics, was looking into the individual personalities and family relationships of union members.

By Lee Jeong-hun, staff reporter; Ahn Tae-ho, staff reporter

Please direct questions or comments to [english@hani.co.kr]