Avoiding the turbulence that can beset a company when there’s a change in leadership is what all shareholders would want to see, but few firms ever manage to successfully transition without a few bumps along the way. All too often a replacement leader of a successful firm will be met with resistance from staff loyal to the previous incumbent, or will be overshadowed by the level of expectation set by their predecessor.
Such a scenario appears to be facing one of the world’s leading electronics firms. When news broke in May that Lee Kun-Hee – Samsung Group’s chairman and leader for nearly three decades – had suffered a heart attack, it rocked South Korea. While he was old and had suffered from health issues for years, Kun-Hee was a man that had transformed the business into a crucial part of South Korea’s economy.
Samsung’s emergence as one of the world’s leading technology businesses over the last decade has surprised many who had looked at the South Korean firm as little more than a copycat electronics manufacturer. Much of this change in reputation is down to the ability of Kun-Hee to focus the company on developing its own high quality products. His illness has come as a major blow to the firm, although it is perhaps not without warning.
Samsung revenue
2008
KRW 121.3trn
2011
KRW 165trn
2013
KRW 228.7trn
In 2000, he was treated for lung cancer, but managed to make a full recovery. He has also suffered from pneumonia. It is therefore unsurprising that plans for his succession have been underway for a number of years as a result of his poor health, but it will certainly be a blow for the firm once he is replaced, and it could determine how successful South Korea’s leading conglomerate is in the future.
Jobs comparisons
Replacing the iconic figurehead of one of the world’s leading technology businesses is a subject that was discussed at great length just a few years ago. When Steve Jobs’ cancer led in 2011 to him being unable to lead the company he founded, it was announced that his deputy and Chief Operating Officer Tim Cook would be stepping up to replace him. The transition, while evidently planned for a while, has not gone as smoothly as many would have thought, with criticisms that the company has lost some of the sparkle that Jobs brought to it.
However, while many draw comparisons between Kun-Hee and Steve Jobs, late leader of Samsung’s biggest rival Apple, some don’t believe that his departure will affect the company in the same way that Jobs’ did in 2011. Telecoms industry analyst Chetan Sharma told World Finance that Samsung’s large number of executives capable of assuming control should ensure that the firm is not left rudderless when Kun-Hee does eventually step down. “Samsung has a deep bench of executives who can take over and not miss a beat. [We] can’t really speculate on who might get the reins. Kun-Hee has been quite influential in making what Samsung is today but hasn’t been so integral to the Samsung brand like Steve Jobs who embodied the spirit of Apple and took deep interest in minute details of products and launches than his counterpart ever did, or needed to.”
Avoiding a similar pitfall may not be a problem for Samsung, with Kun-Hee not having as domineering a role as Jobs did at Apple. However, his contribution to the firm over the last few decades should not be underestimated.
Transformative leader
The son of Samsung founder Lee Byung-chul, Kun-Hee joined the group in 1968. He took control of the firm in 1987, steering the company away from merely imitating other technology rivals and into one of the leading television, memory chip and smartphone makers in the world. Such is the breadth of its offering that Samsung has subsidiaries that provide electronics, construction, hotels and insurance policies.
It was during the early part of the 1990s that Kun-Hee changed the course of the firm, moving away from the cheap technology products and towards high-quality devices that rivalled some of the leading technology firms in the world. This transformation included bringing in a number of foreign executives, something that was a shock to the deep-rooted Korean culture of the firm under his father. In 1993 he made his ‘Frankfurt Declaration’, which set out how he wanted to overhaul how the company was run. He would tell the audience of leading Samsung executives that he wanted to shake-up every part of the business and how it operated. “Change everything but your wife and children,” he reportedly told the crowd.
Of Samsung Group’s many subsidiaries, it is probably Samsung Electronics that has become the most well known around the world. One of the leading developers of semiconductors across the globe, the firm’s technology is now used by many other rival electronics manufacturers. These include bitter rival Apple, even though the two companies have been embroiled in a number of patent disputes for the last couple of years.
South Korea’s engine
The company’s contribution to South Korea’s economy amounts to around 20 percent of GDP, a fifth of the country’s exports, with revenues multiplying 39 times since Kun-Hee took over – a staggering figure that underlines the transformation he has overseen at the firm since 1987. Such has been his success at Samsung that it has also made him South Korea’s wealthiest man, worth a reported $12.6bn last year. His family is so important within the country that it is seen by some to be akin to South Korean royalty.
Chung Sun Sup, CEO of corporate research firm Chaebul.com, told Bloomberg that Kun-Hee’s contribution had not just been felt at the firm, but in the wider South Korean economy. “Chairman Lee has made a significant mark not just for Samsung but also for the South Korean economy as a whole by helping it globalise. There’s probably no individual or company that holds such a huge responsibility in a country.”
His time in charge has not been plain sailing, however. There was a brief period in 2008 in which he stood down as a result of the probe into alleged tax evasion and bribery – something he was pardoned for. However, there have continued to be allegations against him, with a book in 2010 claiming he had stolen as much as $8.9bn from various Samsung subsidiaries, as well as destroying evidence and bribing government officials.
Who and where next?
The candidates likely to succeed Kun-Hee are unsurprisingly expected to come from his offspring. His son, 45-year-old Lee Jae-Yong, is currently Vice-Chairman of Samsung Electronics, and has long been considered the heir apparent. His first major role was in 2007 as Chief Customer Officer, which positioned him as a far more outgoing figure than his father and meant he would directly deal with high profile competitors and clients, such as Apple’s Steve Jobs. His regular business with US firms and influence within Samsung Electronics means that he is perfectly positioned to lead the firm in the future.
Warren Lau, Analyst at Hong Kong based Kim Eng Securities, told The Washington Post that the company had been planning for a change in leadership for a while now, and that Jae-Yong was seemingly anointed Kun-Hee’s successor when he was made Vice-Chairman of the electronics unit in 2012. “His son’s been brought into the company’s management for a number of years now. The question now is what is his vision for the company and whether he can find the next major growth driver.”
Aside from Jae-Yong, there are his two sisters that have prominent roles within the group. Kun-Lee’s elder daughter Lee Boo-Jin currently heads up high-end hotel group Hotel Shilla, while younger daughter Lee Seo-Hyun is President of Samsung Everland’s fashion division.
Where next for Samsung depends on the strategy employed by its new leader. With the firm likely to be led by Jae-Wong, it will continue to focus much of its attention on developing its SmartTV business, as well as its profitable smartphone division. Although there has long been rumours that it might ditch Google’s Android operating system to develop its own, Jae-Wong’s relationship with the firm – and many other US tech giants – will likely mean that he will continue to foster these cross-border partnerships.
One problem might be the relationship the firm has had with other rivals. Samsung is currently embroiled in a number of patent disputes with Apple, and in 2012 was ordered to pay almost $1bn to its US competitor. However, the relationship between the two firms remains confused, as Samsung became Apple’s primary supplier of displays for the iPad during the first quarter of 2014. Settling these disputes and ensuring that Samsung remains at the forefront of consumer electronics will undoubtedly present Lee’s eventual successor with many decisions.
Deciding on what approach to take will be hugely important for Samsung, and so it is important that it has had time to plan for the succession of its leadership. However, unlike many other firms, the company has never relied too heavily on individual leaders. Reactions to how it will pan out for Samsung are mixed, with some believing it will be business as usual, while others believe the departure of such an influential leader could leave the firm rudderless. Whatever happens, it will be hard pushed to find a figurehead that will have as profound an impact on its business as Lee Kun-Hee.
