Lee Kun-hee’s way

Kim Kwang-ki

There is a quiz being swapped by stock traders related to the country’s biggest company. “What are three things that make Lee Kun-hee, chairman of Samsung Electronics, a better entrepreneur than the co-founder of the company’s smartphone rival, Steve Jobs of Apple?

One: Jobs turned out one global bestseller - the iPhone - while Lee accounts for companies that top the semiconductor, smartphone, smart TV and display industries.

Two, Jobs was born, bred and built his company in one of the most enterprise-friendly environments in the world, California’s Silicon Valley. Lee groomed his companies in one of the world’s most anti-corporate societies.

Three, Jobs took charge throughout the development and commercialization of a product while Lee lets his employees freely innovate and experiment to make successful products. When Jobs was hospitalized, shares of Apple nosedived. Samsung shares remained robust when Lee was hospitalized on May 12, even jumping more than 4 percent.

Lee has been bed-ridden in a hospital for a month after he suffered a heart attack and underwent surgery. The market remains strangely calm despite obvious concerns about one of the country’s most influential tycoons. The usual media and market hoopla about the group’s future and who will lead it are conspicuously absent. The market hardly notices Lee’s absence because it’s business as usual at Samsung in terms of management and decision-making.

Industry watchers say Lee’s years-long effort to make his business empire run on merit-based management has paid off. In a recent edition, the Economist singled out Samsung among Asia’s family-owned conglomerates as a model that has evolved into an internationally run multinational.

The magazine hailed Lee for globalizing the company’s corporate culture by making it focus on a core business - technology - which helped the conglomerate avoid the “dinosaur trap” that most Asian business groups fell into, especially Japanese ones.

Lee has bestowed both responsibilities and power to his chief executives, who were groomed for decades in their fields within the group. He was both bold and modest to put such confidence in his pool of talented employees. What makes Samsung different from other family-owned chaebol? Why don’t other conglomerates possess such reliable pools of competent managers and employees?

Retired and active executives of Samsung give credit to Lee’s merit-based management system.

In the early 2000s, when stringent austerity and restructuring measures were forced upon Korea Inc. in return for an international bailout, Lee announced that he would make his employees rich one day. He came through on that promise. He revamped the group’s pay and appointments systems. People who had significant accomplishments in their fields of work were handsomely rewarded.

Academic or hometown backgrounds didn’t get in the way of promotions for capable employees. Employees packed away millions or billions in compensation packages that included stock options in the group’s companies. Encouraged by such rewards, employees willingly committed themselves to research and development. They roamed the world to study overseas cases and markets. Talents from around the world were drawn to Samsung’s incentive-based corporate culture and joined the company. The companies in the group naturally begin to run on a benign cycle. Instead of directly meddling in management, Lee kept the group and its companies in balance by constantly testing and making them compete amongst themselves.

He did not keep sweet-talkers around him. Directors of finance, strategy, audit and research reported to him separately. Regardless of past accomplishments, he did not tolerate anyone who did not live up to his or her worth, who committed breaches of trust, or tried to build up power centers for themselves. Those who were sacked left without complaint because they were sufficiently rewarded during their years at the company.

The way of Samsung sounds easy, but is actually hard to duplicate. That is why we don’t see a lot of successful management in other Korean chaebol. Owners and their family members dominate their corporate empires. The profits of the companies are often used as personal piggy banks by the families. Executives outside the family, not to mention the employees, are rarely compensated well. Owners end up in prison for embezzlement or other malfeasance, betrayed by their formerly close aides or employees. It’s the chaebol way.

Lee has planned a third-generation succession modeled after the Wallenberg family dynasty that has been influential in Swedish banking and industry for more than 150 years. Family owners, chief executives and shareholders have equal ownership in the business empire.

The Wallenberg family also has been active in social contributions and remained ethically clean to protect the family reputation. Samsung is likely to run smoothly under its third generation, Lee’s son and daughters. Let’s just hope that heir apparent and vice chairman of Samsung Electronics Jay Y. Lee is as bold and farsighted as his father and grandfather.

JoongAng Ilbo, June 12, Page 32

*The author is the head of the Economist, a weekly business news magazine published by the JoongAng Ilbo and the Korean edition of Forbes.

BY Kim Kwang-ki