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Samsung heir Lee Jay-yong’s leadership questioned by investors

Lee Jay-yong, the crown prince of Samsung Group,
Lee Jay-yong, the crown prince of Samsung Group
The Korea Observer

SEOUL — Lee Jay-yong, the crown prince of Samsung Group, has spent a busy year paving the way for a successful succession of power from his father, but he has yet to prove that he is prepared to lead South Korea’s top family-controlled conglomerate, market watchers say.

On May 10, 2014, Samsung Chairman Lee Kun-hee was rushed to a hospital after suffering a heart attack. In the latest update on his health in November, Samsung said he was awake several hours a day and moved around in a wheelchair.

The elder Lee’s ill health has emerged as a heavy burden for Jay-yong, 46, although it is no surprise that he would eventually lead the group.

Apparently, the main task for him is to prove his worthiness, and show Samsung executives as well as the business community that he is not just a lucky rich heir, according to the watchers.

Samsung workers and investors remain doubtful of the younger Lee’s credentials because of his traumatic failure in the early 2000s.

Jay-yong, who joined Samsung Electronics at the age of 33 in 2001, had ambitiously rolled out an e-Samsung venture, but it ended up inflicting the company with 20 billion won (US$18 million) in losses. Samsung’s nine affiliates chipped in to recoup the damages incurred by the crown prince, which led civic groups to file a suit against Lee for alleged embezzlement. He was found not guilty, but his credibility was damaged.

Due to his failure, Jay-yong refrained from making aggressive changes to Samsung Group in the first year, but started out by laying the groundwork for the years to come.

“For the past year, Jay-yong has been focusing his efforts on paving the way for a successful succession of power from his father,” said Jeong Sun-sup, who heads, a local researcher that tracks family-run business groups, locally called chaebol.

While it is too early to judge his leadership, the crown prince has made progress in clearing the way for solidifying his presence within the group, including completing his father’s unfinished tasks, he said.

Those tasks included efforts to resolve a long-standing dispute over the outbreak of leukemia in Samsung Electronics Co.’s chipmaking facilities.

In May 2014, a few days after Kun-hee’s hospitalization, Samsung Electronics officially apologized for the first time for the deaths and suffering of its semiconductor workers and promised to pay compensation.

Samsung Electronics also took a step toward ending disputes with its U.S. rival, Apple Inc. In August, the two giants agreed to end legal rows outside of the United States.

Samsung and Apple have been engaging in a legal battle in the U.S. since April 2011, accusing each other of copying patented technologies in their smartphones. Since then, the dispute has spread to South Korea, Japan, Germany, Italy, the Netherlands, Britain, France, and Australia.

Earlier this year, Samsung also ended its battle with Microsoft Corp. The U.S. firm had filed a suit against Samsung Electronics in the U.S. District Court for the Southern District of New York in August after trying unsuccessfully to resolve its disagreement with Samsung over a 2011 royalty agreement.

Jay-yong continued to prove himself as a pacifist by ending the group’s battle with domestic rival LG Electronics Inc. Samsung and LG, as well as their affiliates, Samsung Display Co. and LG Display Co., had been engaging in five lawsuits involving three disputes.
The younger Lee has also succeeded in finding new sources of profit as the group’s traditional cash cows have slowed.

Last year, he met with officials from U.S.-based sports clothing maker Under Armour Inc., indicating the smartphone maker’s move to expand its presence in the wearable devices market. Jay-yong also met with officials from other top-tier global firms, including Roche Holding AG and Volkswagen AG.

Jay-yong did not hesitate to purchase shares in other overseas firms with key technologies, such as U.S. mobile technology firm LoopPay Inc. and Brazilian printing solution provider Simpress. Samsung Electronics also bought Canada-based mobile-cloud firm PrinterOn in September.

But with Samsung Electronics posting lackluster earnings throughout 2014, critics questioned Jay-yong’s capabilities. Although some say such a decline was inevitable, Jay-yong was under fire for failing to promptly deal with changing market conditions.

Nevertheless, market watchers in general believe it is too early to judge Jay-yong’s capabilities.

“I would suggest that there are not many changes at the moment,” said Adam Cave, a business professor at Hankuk University of Foreign Studies. “There might be changes in personnel, but they are not making new waves in terms of major decisions or movements. We have not seen anything different yet.”

“So far, there are no problems. But as Samsung Group is the top conglomerate, it should be careful in changing stakes among its arms and take the public’s opinion into consideration as well,” Jeong said. “Only then will Jay-yong be admired for the next 30 to 40 years to come.”

Kim Sang-jo, an economics professor at Hansung University, said the major task for Jay-yong is to expand his responsibility.

“Jay-yong still has no official position that holds responsibilities in any of Samsung’s affiliates, like registered executive,” Kim said. “There is a gap between his power and responsibility.”

“Also, true leadership can only be made through communication with other members of society, and there has been no progress on this,” he said. “Just meeting top executives from global firms does not give Jay-yong the leadership as a CEO.”

The article was written by Yonhap News reporter Kang Yoon-seung.

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The Korea Observer

The Korea Observer

The Korea Observer is an online newspaper founded in February 2013 with the motto, “Be the voice for the voiceless.” Its reports have been cited by major media outlets, including CNN, BBC, Daily Telegraph, Al Jazeera, Financial News, Chosun Ilbo and DongA Ilbo.

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