Samsung’s union risk

COL-A

Kim Dong-ho
The author is an editorial writer of the JoongAng Ilbo.

At a press conference apologizing for irregularities over the succession process at Samsung Group and union oppression, Lee Jae-yong, vice chairman of Samsung Electronics, said today’s empire would have been unthinkable at its humble founding 82 years ago. Samsung started out with rice milling and brewing in 1938. It expanded to sugar and textile production in the 1950s and then into petrochemicals and electronics in the 1970s. It leaped into semiconductors in the 1980s and is now into bioengineering.

The epic transformation of the country’s biggest corporate name was undermined by the most newsworthy part of Lee’s press conference, in which he vowed not to hand down management control to his children. The foreign media trumpeted the end of hereditary rule at Korea’s most powerful business group.

Civic groups doubt Lee will keep his word. But Lee may not be bluffing, given the foreign ownership in key Samsung companies. Hereditary succession has become more challenging. Even clever sidestepping and exploiting of loopholes in current regulations and laws won’t be enough. The world’s highest inheritance tax rate of 65 percent will be the biggest obstacle. Tax is the largest stumbling block to hereditary succession in a colossal conglomerate like Samsung. Few can now attempt to overcome the Korean tax trap.

Unlike many cases in the United States, Europe and Japan, Korean companies won’t be able to keep business in the family from the fourth or fifth generation onwards. Family-run enterprises have been the primary growth of Korea Inc. Many companies in the United States and Europe are still run by founding family members. Of corporations dubbed “hidden champions” in Germany, which drive the German economy, nearly 70 percent are under management by the founders or their families. A management tied to the founder can wield strong command over enterprises and pursue investments and a vision with farsightedness. After the corporate empire becomes big, they separate ownership and management.

Korea is also home to the most notoriously hard-line unions. The Korean Confederation of Trade Unions (KCTU) poses a threat to employers with their violent and aggressive ways. It provides funding to worksites without unions and teaches workers about protesting skills to ultimately create unions within them and organize protests under their orders. Daily hires cannot find work at worksites if they do not join unions as the two mammoth umbrella union groups vie fiercely to increase their numbers and influence.

The two umbrella unions are also moving fast into Samsung worksites. Union units of Samsung Electronics, Samsung Display, Samsung SDI and Samsung Fire and Marine Insurance under the umbrella of the Federation of Korean Trade Unions (FKTU) launched a coalition of unions of Samsung Group immediately after Lee’s press conference.

Unions of Samsung Electronics and Samsung Display have asked for a get-together with the management, but have not gotten a positive answer. The management is engrossed with battles on the external front because its lead in chipmaking is threatened amid the technology hegemony conflict between the United States and China. As Samsung has been keeping up dialogue through a labor-management council, it does not see the urgent need for unions. Most of its employees are used to the existing system and do not feel they need to turn to unions.

But since the de facto leader of Samsung has promised to guarantee the three basic rights of labor, unions will likely raise their voice. Samsung may have to turn more attention inwards. Korean union groups have been hostile towards management. The militant KCTU meddles not just in labor terms but in management affairs such as investment plans and staff organization. Hyundai Motor even needs approval from unions to realign production lines regardless of consumer demand.

Samsung should not be shaken. If owner leadership weakens, its cooperative networks with affiliates also could slacken. If moral hazard from CEOs eager to make short-term profits is aggravated with union risks, Samsung could lose its global competitiveness. If a combative umbrella union group influences unions in Samsung, Korea’s chipmaking prowess could be at risk. The relief so far is that unions in Samsung have chosen to go under FKTU, which is more flexible than KCTU. The world will be watching a unionized Samsung. If labor disputes and unrest disrupt chip production lines, Samsung’s rivals in America, Japan and China will be pleased. That day must not come for the sake of many.