Exerting leadership has gotten tougher in South Korea. Most chaebol dons once imposed their wills by manipulating their family-controlled monopolies, buying politicians and growing their companies as big as they could. As a result, many ended up either bankrupt, in jail or on the run when the floor fell out from beneath South Korea’s financial system in 1997. Not Chairman Lee. Samsung’s chief weathered the storm with remarkable ease while archrivals Hyundai and Daewoo foundered. Six years later Samsung ranks among the world’s top high-tech manufacturers, one that’s beating competitors like Sony and Motorola to capture key international markets. Samsung’s profit has surged thirtyfold over the past decade as it became the world market leader in 19 products, including memory chips and flat-screen televisions. In July the global consulting firm Interbrand declared Samsung the world’s fastest growing brand, setting its brand value at a staggering $10.8 billion. And just last week the company announced that it would repay $1 billion in loans by next year to become South Korea’s only debt-free chaebol.
Arguably, Lee’s conglomerate now holds more power than any other firm in the country’s history. Samsung accounts for a fifth of South Korea’s exports and pays 7 percent of all taxes collected domestically, a bill totaling $5 billion a year. By value, its shares make up 30 percent of the Korea Stock Exchange. That means the company’s direction has an incredible influence on the South Korean economy, and helps explain why Lee’s rare public utterances are avidly parsed by CEOs and politicians alike. (Earlier this month the respected weekly Sisa Journal released a survey showing him to be the most influential South Korean businessman, garnering 86 percent of respondents’ votes.) The question for Korea is whether Lee is leading the country into a new era of transparency and efficiency, or singlehandedly propping up the tycoon culture of old.
Lee himself doesn’t provide many clues. He almost never grants interviews–NEWSWEEK’s request was denied–and his sporadic public pronouncements can be as wacky as they are influential. Unlike other chaebol chiefs, he doesn’t covet public office or cavort–at least openly–with leading politicians. Nor does he visit headquarters often, reputedly enjoying an aristocratic lifestyle replete with exotic cars, champion Pekingese pooches and priceless artworks collected from around the globe. He’s been called “the invisible man,” and Sisa dubbed him a “hermit with charisma.”
Since he took the helm of Samsung 16 years ago after his father’s death, Lee’s corporate leadership has been bold. He’s instilled a company culture that values trendsetting and shuns resting on laurels. Early on, he set out to radically transform Samsung’s management structure to ward off complacency, ordering employees to “change everything but their wives and children.” Analysts credit his reforms–which improved accountability, design and quality control–for Samsung’s dynamism. Indeed, changes Lee imposed in 1993 are what saved the company from dismemberment during the Asian financial crisis. Today foreign investors hold at least a $30 billion stake in Samsung, perhaps more than in any other company in Asia; many, no doubt, were attracted by Samsung’s openness and willingness to reform itself from within.
At the same time, Chairman Lee is a dinosaur. Like any Korean leader imbued with Confucian ethics, Lee demands absolute loyalty from employees. His tenure–like that of other chaebol bosses–has been plagued by charges of bribing politicians and subsidizing weaker companies. And, despite his success at streamlining Samsung into a profitable multinational, he remains intent on installing his son, Jae Yong, at the helm of the family business at a time when companies across the region are championing efficient, impartial management. Lee’s critics see his leadership as business as usual. Says Park Geun Young, an activist at the People’s Solidarity for Participatory Democracy, “In corporate governance and management transparency, Samsung has to work harder.”
When Lee started leading the family business in 1987, he had something to prove. Educated in Japan and the United States, Lee took charge amid rumors of wild living. Company executives were therefore surprised that the younger Lee was in fact serious and often passionate about the business–not an heir likely to fritter away his family’s fortune.
The new CEO put his stamp on the company at an event that employees still call the Frankfurt Meeting. Intent on rallying the company’s top brass, Lee summoned 150 senior executives to the German city’s luxurious Kempinski Hotel in 1993, ordering all to fly first class. He began his presentation at 8 p.m. and lectured nonstop for more than seven hours. “He didn’t even go to the bathroom,” recalls one participant. His guests were dumbstruck. “Chairman Lee was talking about an end-of-century crisis at a time when things were going relatively smoothly,” says Samsung’s vice president for communications, Lee Sun Dong. “Many executives couldn’t quite grasp his message.”
At the end of the conclave Lee ordered his guests to stay on for a week to sightsee. In another meeting, in Los Angeles, he handed out $1,000 each to dozens of senior managers, instructing them to go out and buy top-grade electronics to use and compare with Samsung’s products. The gifts and five-star treatment weren’t rewards so much as tools Lee used to expose his top staffers to the outside world–a lesson central to what he called Samsung’s New Management Initiative.
The initiative set out to remake Samsung in the image of Japan’s iconic electronics giant, Sony. That entailed shedding sunset industries like textiles, spinning off noncore assets and phasing out low-end products like electric fans and radios. In factories, Chairman Lee had Sony products displayed alongside Samsung’s wares to highlight gaps in technology and design. Lee’s obsession with quality and innovation, combined with technical leaps made in the 1990s, helped the company overtake its Japanese rival. “The game is over,” says Namuh Rhee, a former Samsung executive who recently founded his own investment fund. “Sony failed to adapt to the digital age, while Samsung succeeded.”
The fact that Samsung had begun to remake itself before the 1997-98 Asian financial crisis proved critical. “Samsung was able to slash a third of its work force and sell unprofitable companies without major problems,” says Lee, the VP for communications. “New Management led us to prepare for a rainy day.”
Ironically, the biggest threat to the company resulted from Chairman Lee’s own blunder: in the mid-1990s he plunged Samsung into the auto industry at precisely the wrong moment. Worse, the move smacked of impropriety. Because the carmaker took financing from listed Samsung entities, corporate watchdogs accused Lee of dabbling in a vanity business while shareholders footed the bill. “The auto venture was Lee’s biggest failure,” says Henry Morris of the Seoul-based Industrial Research and Consulting. “But he learned a quick lesson from that and has since remained focused.”
Samsung was the lone major chaebol to survive the crisis intact. (In contrast, Hyundai was forcibly broken up and Daewoo went bust.) On the one hand, it can be–and is–held up as a model for Korean companies. Today Lee’s conglomerate looks a lot like General Electric, with core businesses in electronics, finance and services. One measure of its success is the extent to which it now cooperates with Sony. Samsung recently adopted Sony’s memory-stick technology as a standard for its products, for example, and the two companies just launched a joint venture to manufacture flat-screen-television monitors. Samsung’s rise is so impressive that even the Japanese financial press now sings its praises.
At the same time, no less a person than Chairman Lee is concerned about complacency. Earlier this year, he marked the 10th anniversary of his New Management Initiative by calling on his 175,000 employees to remake the company yet again. Korean companies, including Samsung, are sandwiched: their technology and software lags behind advanced economies, while China is quickly catching up on their progress in hardware. Within Samsung, Lee’s latest initiative, his so-called genius-management theory, aims to recruit topflight talent whatever the cost to stay ahead of global competitors. But his call to remake the company is understood as a warning for all of Korean society to work harder.
The chairman’s ideas about merit-based pay and the need to outrun the pack on technology are important concepts, to be sure. Yet his lack of specifics regarding Samsung’s future development path is telling. In contrast to a decade ago, he no longer makes routine management decisions, and his role as chaebol boss has grown more symbolic than actual. Samsung, in fact, is unique among global corporations in that its CEO stays above the normal fray, leaving divisions in the care of senior executives who run them with little everyday input from above. In this respect it could not be less like the chaebol of old, where bosses decided everything from production schedules to the hemlines on company uniforms.
The change is reflected in Chairman Lee’s last battle: installing his Harvard-educated son, Lee Jae Yong, currently the managing director of Samsung Electronics, to replace him as head of the whole group. Whereas the succession once would have been preordained in accordance with Korea’s Confucian traditions, today powerful civic groups representing minority shareholders are contesting the move as pure nepotism. A few years ago, People’s Solidarity for Participatory Democracy sued Chairman Lee for bribery, for which he was convicted in a lower court ruling and has since appealed, and misuse of company funds, a charge of which he was found not guilty. Its latest claim is that he illegally transferred company shares to his 35-year-old son at below-market prices in a scheme to dodge inheritance tax. The company denies this allegation. Prosecutors will soon decide whether the case is strong enough for them to press charges.
Truth be told, investors don’t really care how the dramas play out. To them, Samsung’s solid management structure, clear goals and dominance in key high-tech markets are intrinsically attractive enough to ward off fears of succession–or legal–problems. And that, like the five-day workweek, is good news for Korea, too.
