August 12, 2017 12:02 pm JST  (Updated August 13, 2017 7:33 am JST)

Samsung trial raises questions of Lee's leadership prowess

'Chaebol sniper' compares accomplishments with Hyundai's heir apparent

KENICHI YAMADA, Nikkei staff writer

SEOUL -- Is Lee Jae-yong, vice chairman of Samsung Electronics, qualified to lead South Korea's top industrial group? The bribery trial Samsung's de facto leader is going through has raised questions within South Korea's business world of whether his position can be justified. 

During the trial, Kim Sang-jo, chairman of the Korea Fair Trade Commission, said that to date, Lee had failed to demonstrate to investors his management prowess.

Samsung is the biggest South Korean family-run conglomerate, or chaebol, and it is unusual for a cabinet member to question the management ability of a top business executive.

Kim is entrusted by President Moon Jae-in to reform the chaebol. The presence of Kim, nicknamed the "chaebol sniper," may become the biggest barrier to Lee's attempt to complete the process of inheriting the management of Samsung from his father Lee Kun-hee, who has been in ill health for years.

On August 7, prosecutors sought a 12-year jail term for Lee on charges of bribing former President Park Geun-hye.

Prosecutors maintain that Lee Jae-yong received favorable treatment from the Park administration for the merger of two Samsung group companies in 2015, which reinforced his influence over Samsung Electronics. In return, Samsung provided funds to the former president, according to prosecutors.

Lee and Samsung have both denied the allegations.

In mid-July, Kim testified at the Seoul Central District Court, saying the nerve center of Samsung decided on the merger of the two group companies as part of a scenario for Lee to inherit their management from his father.

While a governmental financial institution decided to support the merger, the impeached president's message is considered to have served as an "extremely important guideline" for the decision, Kim said, suggesting that the Park administration provided a favor of some kind for the deal.

The KFTC chairman then said that Lee needs to be appreciated for his management competency from stakeholders by generating favorable results in new businesses in order to complete the succession of management rights. Kim thus suggested that Lee's ability as the leader of Samsung Group has yet to be recognized by investors and other stakeholders.

Observers of the trial took Kim's testimony as indicating that Lee had sought help from the Park administration because of the inadequate appreciation of his management ability from the people around him.

Kim also compared Lee with Chung Eui-sun, vice chairman of Hyundai Motor, who is seen as the heir apparent of Chung Mong-koo, CEO of the biggest South Korean automaker.

Chung Eui-sun is said to have demonstrated his leadership in rehabilitating Kia Motors, a member of the Hyundai Motor group, and enhancing the brand recognition of the Genesis, Hyundai's highest-end vehicle.

Few people question Chung's ability, Kim said, drawing a clear distinction between him and Lee, who lamented that he had not been given enough opportunities by Lee Kun-hee to demonstrate his ability.

Lee Jae-yong started an Internet business in the 2000s but failed to produce results.

Samsung held a group company responsible for Lee's failure, Kim said.

Strong results

Samsung Electronics is logging extremely strong results at present. In the April-June period, the core of the chaebol posted a group operating profit of 14.07 trillion won ($12.49 billion), up 73% from a year earlier and setting a new high on a quarterly basis. The company is widely expected to book a record operating profit of more than 50 trillion won in 2017.

A considerable number of analysts and other people concerned praise Lee's decision on Samsung's acquisition of major American autoparts maker Harman International Industries. But Kim's question about Lee's ability shows the difficult position he is in.

Kim's tough stance on Lee reflects his current position given by Moon, who was elected president on the back of public opinion against the chaebol.

Kim, a former university professor, is a key member of a group calling for the reform of the chaebol. He gained his "chaebol sniper" nickname for his shareholder activist campaigns, including lashing out at Samsung's opaque governance structure at a general shareholders meeting. He has also brought charges against Hyundai Group and Kumho Asiana Group.

In July, the Blue House, the executive office of the president, announced the discovery of a document possibly indicating the Park administration's involvement in the management succession problem at Samsung Electronics. The document says that the administration examined what was needed by Samsung in the phase of management succession and sought ways of letting the company contribute to the South Korean economy.

The announcement could be taken to mean that Kim and the Blue House are acting in concert to bring Samsung to heel. The move may have been prompted by the Moon administration's strong determination to expose wrongdoing by the chaebol.

Asia300

Samsung Electronics Co., Ltd.

South Korea

Market(Ticker): KRX(005930)
Sector:
Industry:
Electronic Technology
Telecommunications Equipment
Market cap(USD): 341,634M
Shares: 147.34M
Asia300

Hyundai Motor Co., Ltd.

South Korea

Market(Ticker): KRX(005380)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 37,945.6M
Shares: 285.47M
Asia300

Kia Motors Corp.

South Korea

Market(Ticker): KRX(000270)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 12,234.9M
Shares: 405.36M

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