Conglomerates keep it in the family, but only just

There has been a long-held debate in business studies as to what system of management is most desirable: management by owner-families or by professional chief executives.

Japan’s leading carmaker Toyota has been adopting both systems alternately. The automaker, which was founded by the Toyoda family, hired outside CEOs until 1995 and returned to the family system with Akio Toyoda at the helm, who is the grandson of founder Sakichi Toyoda.

Major Korean conglomerates have traditionally stuck to owners’ management - until recently. The top two conglomerates by assets, Samsung Group and Hyundai Motor Group, are apparently run by sons and daughters of the owners, and even by their sons-in-law.

Samsung and Hyundai Group’s third generation of business leaders includes Lee Jae-yong, the only son of Chairman Lee Kun-hee, and Chung Eui-sun, the only son of Chairman Chung Mong-koo.

Now the spotlight is on the sons-in-law of the groups’ chairmen. They are receiving promotions and playing bigger roles in their fathers-in-law’s businesses.

In the Samsung Group’s latest wave of promotions in December, two sons-in-law of Chairman Lee rose up the ranks. Im Woo-jae, husband of Lee’s eldest daughter Lee Boo-jin, who is the president of both Hotel Shilla and Samsung Everland, was promoted to vice president of Samsung Electro-Mechanics. Im has been learning the ropes since he joined the group’s upper echelons in 2005.

Kim Jae-youl, husband of Lee Seo-hyun, the chairman’s second daughter and vice president of both Cheil Industries and Cheil Worldwide, has become the president of Samsung Engineering. Only one year after Kim served as a senior vice president at Cheil Industries, he has been promoted to president.

Samsung Engineering is a strong player in the chemicals industry, which accounts for more than 70 percent of the subsidiary’s total sales. General forecasts predict that the second daughter will take over the textile business, which would mean she’d need support from the chemicals unit.

Hyundai Motor Chairman Chung Mong-koo’s second son-in-law Ted Chung, CEO of Hyundai Card and Hyundai Capital, is reputable as a capable chief executive. Since taking office in 2003, he has successfully raised the group’s capital unit as the second-largest player in the credit card market. He started as an executive at Hyundai Corporation in 1987.

Shin Sung-jae, CEO of steel manufacturer Hyundai Hysco, is the third son-in-law of the chairman. Shin joined Hyundai Hysco as an executive in 2001 and became president after four years.

One son-in-law of the late Chey Jong-gun, SK Group founder and chairman, is also currently participating in the conglomerate’s management. Chey’s second son-in-law, Park Jang-suk, is the CEO of SKC, a chemicals and film manufacturer.

Meanwhile, LG Group has stood its ground on its principle that no daughter or her husband can join the group’s management.

Moon Sung-wook, the husband of Shinsegae Group Vice President Chung Yoo-kyung, who is the daughter of Chairwoman Lee Myung-hee, has also recently been appointed vice president for the China business of E-Mart.

“One of reasons could be demographical changes, including generational transition,” said Kim Kwang-hyun, a management professor at Korea University. “Those conglomerates have more daughters than sons, which is part of a demographical change from a male-dominated society toward gender equality.”

The professor stressed that if they prove themselves as capable managers, there is no need to be critical of the practice.

“There are both advantages and disadvantages in the management systems run by owners’ families and by hired CEOs,” Kim said. “In terms of claiming responsibility, owners’ family members could do better than outside people.”

It is also inevitable for the major conglomerates to markedly speed up embracing family members due to the businesses’ international growth.

“Take Hyundai Motor as an example - the group is becoming remarkably larger, even owning the financing unit,” Kim said.

As social perception has changed, it has become common to see chaebols allocate their businesses to not only sons, but also daughters and even their husbands. This was not a typical phenomenon in Korea’s family-centered tradition. However, it remains to be seen whether a son-in-law at any conglomerate in Korea will get a chance to take over the group in the future.

According to an official at Samsung Group, the sons-in-law Im and Kim are taking part in management of the group with their wives, but they do not own any stake in the group yet.

“In the case of Samsung, the daughters have received both managerial posts and property, while their husbands have got only positions at the group,” the Samsung official said.

By Song Su-hyun [ssh@joongang.co.kr]