Korea

Samsung Electronics Promotes Founding Family Scion


By Kevin Cho

(Bloomberg) — Samsung Electronics Co. promoted Lee Jae Yong, son of the former chairman, in a reorganization investor activists said was part of a succession plan to place the scion at the helm of South Korea's largest industrial group.

Asia's largest maker of chips, flat-screens and mobile- phones, today said it appointed the 41-year old Lee to executive vice president and chief operating officer. Choi Gee Sung, 58, replaces Lee Yoon Woo, 63, as chief executive officer, parent Samsung Group said in a statement.

"As long as Samsung can deliver good earnings, investors may not turn very negative on the company simply because of this management reshuffle" because it was expected, said Sang Won Kim, a Hong Kong-based portfolio manager at RCM Asia Pacific Ltd., which oversees $10.8 billion. "Samsung's performance from now on will become more critical in proving his management capability."

Lee's ascent comes less than four months after Hyundai Motor Co., South Korea's largest carmaker, promoted the chairman's son. The International Monetary Fund cited the business model of family-run conglomerates, known as chaebols, and their debt-driven practices as part of the reason the Asian country's economy fell into financial crisis at the end of 1997.

The promotion "signals a reversal of reforms and a return to the chaebol," said Kim Sang Jo, head of activist group Solidarity for Economic Reform, which opposes the involvement of companies' founding families in management. "I don't think he has learned enough to get promoted."

Financial CrisisChaebols were widely credited with South Korea's economic success until the Asian financial crisis, which revealed cross- shareholdings and hidden debts that forced the collapse of the Daewoo and Hanbo groups and led the nation to seek an International Monetary Fund bailout. Hyundai Motor in August named Chung Eui Sun, the 39-year-old son of Chairman Chung Mong Koo, as vice chairman.

"The promotion shouldn't be connected with the issue of Lee's succession," Rhee In Yong, executive vice president of Samsung Group's communications team, told reporters today.

Samsung Electronics lost 0.3 percent to close at 777,000 won in Seoul trading, compared with the benchmark Kospi index's 0.1 percent advance.

The Suwon, South Korea-based company in October reported net income tripled to a quarterly record of 3.72 trillion won ($3.1 billion), helped by a rebound in chip prices and a weaker won that boosted the value of overseas sales. Lee's father Lee Kun Hee took the reins of Samsung in 1987, succeeding his father and company founder Lee Byung Chull. Lee Kun Hee resigned in 2008 after he was convicted of tax evasion and causing company losses.

Cleared ChargesSouth Korean prosecutors said in April 2008 Lee Kun Hee breached his fiduciary duty because he knew of illegal sales of bonds by Samsung Everland Inc., the group's de facto holding company, and Samsung SDS Co. designed to transfer control of Samsung to Lee Jae Yong.

In May, South Korea's Supreme Court upheld a ruling that cleared the elder Lee of breach-of-duty charges related to Everland. In August, the former chairman was found guilty of causing losses at SDS and was handed a three-year prison sentence suspended for five years, allowing him to remain free.

Building Track Record"By appointing Lee as COO, the company is trying to build up a good track record for him at a time when it is poised to do well financially," said Kim Sun Woong, head of the Center for Good Corporate Governance, an independent group monitoring chaebol governance.

Lee's progress to the helm of Samsung will now accelerate even though he lacks the experience necessary for the top job, said Solidarity for Economic Reform's Kim, who is also a professor at Korea's Hansung University.

Lee Jae Yong, a Harvard Business School graduate who joined Samsung Electronics in 1991, will take help to better meet the needs of Samsung's global customers, the company said. Previously, he was the chief customer officer and vice president at the strategic planning division, according to the company.

Separately, Samsung Electronics said each of its business units will be managed as stand-alone companies to "create a more focused and responsive business structure." There will be seven independent companies under the new organizational structure, Samsung said.

"The Lee family has always been in control of the company and will be for the foreseeable future," said Center for Good Corporate Governance's Kim.

To contact the reporters on this story: Kevin Cho in Seoul at kcho2@bloomberg.net.

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