Sandwiched Korea, and Samsung
By Cho Jae-hyon
Finance Editor
Samsung Group Chairman Lee Kun-hee was the center of media attention again last week. An appeals court upheld a ruling that two Samsung executives were guilty of a breach of trust in the process of helping hand over the group 's management control to his son.
According to the ruling, the two executives _ key aids to Lee _ violated laws by selling shares of Samsung Everland, a theme park affiliate acting as a holding firm for the group, at a steep discount to his son in 1996 for the shift of power to the third generation successor. It said that the deal inflicted a 9 billion won loss to the company.
Right after the high-profile ruling, Samsung appealed the case to the highest court, arguing that the bonds convertible to shares of Samsung Everland were sold at the proper price and did not cause a loss to the company.
Lee has been suspected of having masterminded the scheme to transfer ownership of the nation’s largest conglomerate to his 39-year-old son in the illicit securities transaction. The court left the accusation unanswered as the prosecution did not include the charge in its indictment.
But few would believe that Lee was not responsible for the illicit deal given it was the transfer of group control to his only son. It might be too naive to think otherwise.
Three days after the appeals court delivered its ruling, Lee recited his theory of ``sandwiched Korea'' at a speech, referring to the situation where the country is stuck between Japan running ahead and China catching up fast behind.
Lee lamented that the sorry situation is turning worse due to an outdated education system that blocks nurturing of geniuses. Little doubt as to why he kept mum about the court's ruling.
Precisely, sandwiched in between Chinese and Japanese rivals are Samsung and other major leaguers. The job to break this impasse falls on the top managers of these big companies that command the pool of the country’s finest human resources.
A Frog in a Pot
A story about a young Samsung man also drew attention from Internet users last week. Voluntarily quitting Samsung Corp. just a year after he joined the covetous trading arm of Samsung Group, the man left a long message on the group’s online bulletin and later the full text was made known to the public through the Internet. In the letter, titled, ``The reason I quit Samsung that I love,’’ he said that he decided to leave the company as he was disappointed at the top-down, stifling group culture.
Comparing the company to a frog in a pot, he said that when the water in the pot boils, the frog reacts to raise its body temperature and swims slowly in a gesture to adapt to changes. But in the end it goes belly up in the hot water. The real change meant bolting out of the pot.
Concluding the letter, he said he hoped that Samsung would turn stronger and his colleagues would rebuke him for having left such a good company 10 or 20 years later.
Some may criticize him for choosing an easy way out, rather than trying to stay and help fix what he thought was wrong in the organization. His disappointment seems to be greater because he loved the group so much.
This case indicates that even inside Samsung, the cream of Korea Inc., forces resisting change are strong. Samsung is the group that college graduates most want to work for and Lee is often cited as the most respected businessman among students.
However, the overall image of Samsung and most other chaebol is not positive in the eyes of the public. In a recent survey by the state-run Korea Development Institute, the majority of people said they feel negative about conglomerates, stating that chaebol are responsible for the public’s anti-corporate sentiment.
Asked why they feel badly about chaebol, they pointed to immoral management, accounting fraud and illegal stock transactions among family members to evade taxes.
As Lee said, Korean companies face rough sailing ahead. Chinese firms are chasing at an alarming pace. They have no time to look backwards as they have to play catch-up with global players.
Samsung has been held captive inside the inheritance trap for years. It should break free from it. Otherwise Chairman Lee's son Jae-yong will have to take the throne on shaky ground.
Regardless of the Supreme Court's final verdict, Samsung should draw up and implement measures to improve its governance and alleviate negative public sentiment.
Samsung is tasked to play an important role in pulling the country out of the nutcracker _ sandwich _ situation. To do so, it must jump out of the boiling pot first. Samsung should not underestimate its capability to change as it has done over the past few decades. The refusal to improve its governance is in itself a breach of trust.