August 7, 2014 12:00 am JST

Illness at the top clouds company outlook

KENTARO OGURA, Nikkei staff writer

SEOUL -- Samsung Electronics Chairman Lee Kun-hee, who has ruled South Korea's technology giant with an iron fist, is sick. Smartphone issues have beset the company, and there are questions about who can lead while he remains out of action.

    Lee has been away from the office since suffering a heart attack about three months ago. The company faces the daunting task of putting together a new management team and filling Lee's very big shoes.

    Xi Jinping on July 3 paid his first visit to South Korea as China's president, holding talks with his counterpart, Park Geun-hye. He attended a meeting of 30 or so business leaders from the two countries the following day. Samsung's chairman could not attend. His eldest son and vice chairman, Lee Jae-yong, sat in for him at the event, which took place at at Seoul's Shilla hotel.

    Lee Kun-hee was hospitalized May 10. He is now recovering, his heart having stopped at one point. He is awake for eight to nine hours a day but still has difficulty communicating with others, according to Samsung.

    Lee took the helm at the company in 1987 after the death of his father, its founder. Over the course of his 27-year reign, Samsung has become South Korea's foremost corporation. Group sales surged nearly fortyfold under his guidance. Samsung's founding family controls the capital, and group companies have interlocking interests in the corporate wealth. Vastly influential within the group, Lee enjoyed secure control over the Samsung empire.

    Samsung has so far been unscathed by Lee's absence, because he had a hands-off management style. Much of his work was delegated to his inner circle of business strategists and executives. He therefore showed up for work once or twice a week, and stayed abroad for several months a year.

    But matters such as executive appointments and major investment decisions are the chairman's exclusive preserve. It looks certain that Samsung will be affected significantly if Lee is unable to work for a prolonged period of time.

     Lee's stewardship of Samsung is legendary, but has not been without setbacks. He stepped down in 2008 amid a financial scandal. By 2010, he was back, crafting in a matter of two months or so a 10-year program for new business investments. His comeback and new ambitious business goals impressed everybody at a time when the company was reeling from the effects of the global financial crisis.

     Now that the smartphone business, one of Samsung's cash cows, is slowing, however, the company faces difficult decisions. Solar cells and four other businesses handpicked by Lee as growth areas have yet to produce strong results. At this juncture, as the company ponders how to turn itself around, Samsung badly needs new blood that can match the ailing leader's abilities and lead in the coming years.

    Top of the short list of successor candidates is his son Jae-yong. He is the leading shareholder in Cheil Industries, formerly called Samsung Everland, with a 25.1% stake. Cheil is regarded as Samsung's holding company. Jae-yong has already been involved in many of the group's key decision-making processes, sources close to Samsung say.

     Jae-yong is fluent in both Japanese and English, having majored in business administration at Japan's Keio University and Harvard University in the U.S. after completing undergraduate studies at Seoul National University.

    People who know him are complimentary about his personality and business acumen. Still, his managerial achievements so far have failed to impress. Many wonder whether he has the skills necessary to assume the top job at Samsung.

    One former Samsung official points out, however, the current chairman also had little to show as a leader when he took the company's top position. It was only after Lee became chairman, for example, that Samsung's semiconductor business began to thrive. Earlier, the company's foray into the chip industry through the acquisition of Korea Semiconductor Co. in 1977 is said to have met with considerable opposition.

     Because the chairman has served as the sole spokesman for Samsung, his son has seldom appeared in the media, making it difficult to know what kind of business philosophy and ambition the younger manager espouses.

     That may change soon. At the very least, preparations for picking an heir will gather speed if Samsung continues to go without the critical presence of its revered chairman.