[JY Era 100 Days] Samsung's Last Chairman... Lee Jae-yong Cuts Off Succession Risks

③ Lee Jae-yong Abandoned 4th Generation Management
Samsung's Governance Structure Remains Unknown
Should Reflect Advantages of Owner System
"Time Will Tell" Skepticism Also Present

[Asia Economy Reporter Han Ye-ju] In the past, there was a saying in the business and political circles that "Samsung's biggest weakness is Lee Jae-yong." This does not mean that Lee Jae-yong is a problem as an individual or as a manager. It means that the owner-controlled structure, where management rights are passed down through bloodlines, is holding Samsung back.

Chairman Lee himself acknowledged that there are issues with the succession of management rights. In May 2020, he apologized for violations of compliance obligations that occurred during the succession process and declared that he would give up fourth-generation management. At that time, Chairman Lee said, "Many controversies surrounding me and Samsung fundamentally stem from the succession issue," and added, "I clearly promise here that there will be no more controversies arising from the succession issue." He also firmly stated, "I do not intend to pass on the company's management rights to my children." In doing so, he directly resolved the long-standing succession risk that had troubled Samsung.

Lee Jae-yong, Chairman of Samsung Electronics.

Thus, Chairman Lee is expected to be the last head of Samsung Group, the top conglomerate in Korea. Of course, Samsung is already a company with an established professional management system. Currently, Samsung Electronics is led by Vice Chairman Han Jong-hee and Vice Chairman Kyung Kye-hyun, who each oversee the DS Division and the DX Division, respectively. The company is focusing on expanding business competitiveness through executives with expertise and capabilities in each business area. However, if the head disappears, how will major decisions such as appointing top executives or making large-scale new investments be made?

The first thing that comes to mind is the method of donating shares to a foundation, which then makes key decisions. For example, Bill Gates, the founder of Microsoft in the United States, created a foundation and donated his entire fortune. Overseas, there are quite a few chaebols that have placed their assets into foundations instead of passing them on to their children. It is also possible to establish a family joint management system like the German home appliance company Miele. Miele has been controlled for over 120 years by the Miele family and the Zinkan family, each holding half of the foundation. Family members who want to become company representatives must first work for decades at other companies to prove their abilities. Those people then fiercely compete, and the final winner takes the position of company representative.

There is no information yet on how Samsung's governance structure will change in the future. A Samsung Electronics executive who previously worked at Samsung's Future Strategy Office said, "Nothing has been disclosed externally, but there is likely a task force considering the new governance structure." Chairman Lee Jae-yong once said, "I was already receiving management training as Samsung's next head when I was coming of age." This was when his father, Chairman Lee Kun-hee, was in his 40s. Chairman Lee is now in his late 50s. It is the time when the framework of the new governance structure should have already begun to be established.

However, the new governance structure is expected to incorporate the advantages of the owner-management system. The owner-management system has dual aspects. The problems of bloodline management are well known and need no listing. However, the strong leadership of owners also played a role in driving South Korea's industrial growth. Employees of Korean conglomerates moved as one at the owner's word, accomplishing what seemed impossible to outsiders. In particular, Samsung, under the late Chairman Lee Kun-hee's leadership, made massive investments during the semiconductor downturn in the early 1990s, creating the "semiconductor myth." Former Samsung Electronics President Lim Hyung-kyu described the situation as the "first semiconductor chicken game." Semiconductor prices plummeted, and the more they produced, the more they lost. Normally, reducing production would be considered. But the owner instructed not to succumb to fear and to invest more. As a result, Samsung secured its position as the world's number one memory semiconductor company.

The declaration to end the owner-management system aligns with Chairman Lee's emphasis on the philosophy of "talent management." He stressed, "Samsung must continue to recruit excellent talent regardless of gender, academic background, or nationality, and those talents must work fiercely with a sense of ownership and mission to lead the business. That is the responsibility and mission entrusted to me." If Samsung was once a company led by a single charismatic leader, the new Samsung must be led by experts recruited from outside, working together. Accordingly, the future Samsung is expected to separate ownership and management, with professional managers playing a larger role.

There is also skepticism that the issues of management succession and governance changes can only be known with time. Considerations include Chairman Lee's age, born in 1968 and now 55 years old, and the fact that Vice Chairman Lee's children have just reached adulthood. When Chairman Lee said there would be no fourth-generation succession, a senior Samsung executive asked, "Is there any guarantee that the chairman will think the same way when he is 70 or 80 years old?"