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Samsung Chairman Lee Kun-Hee Heart Attack Triggers Successor Speculations

May 13 2014, 4:13am CDT | by

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Samsung Chairman Lee Kun-Hee Heart Attack Triggers Successor Speculations
 
 

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Samsung Chairman Lee Kun-Hee Heart Attack Triggers Successor Speculations

The uncertain medical condition of Samsung Electronics Chairman Lee Kun-Hee has sparked a flurry of speculation about “the succession” – the polite term used by Samsung people when talking about the transfer of control of the Samsung empire from Lee to his son and two daughters.

While 72-year-old Lee lay unconscious in Samsung Medical Center after suffering a heart attack Sunday night, the spotlight shone on his 45-year-old son, Lee Jae-Young, vice chairman of Samsung Electronics; Lee Boo-Jin, CEO of the Hotel Shilla, one of Korea’s most elite luxury lodgings and conference centers, and younger sister Lee Seo-Hyun, president of the fashion division of Samsung Everland, the main holding company for the group.

In ill health for years, first from cancer, then from pneumonia and respiratory infections, Lee,  South Korea’s richest person with a net worth of $12.9 billion, set the stage for an orderly succession well before he was stricken. Although he owns only 3.4% of the shares in Samsung Electronics, whose sales account for 16% of Korea’s gross domestic product, he controls the group through ownership of shares in other Samsung companies and cross-shareholding among companies.

Lee’s son and two daughters are seen as sure to solidify their succession when another Samsung IT company, Samsung SDS, begins selling shares on the Korean stock exchange from which they’re expected to amass nearly two billion dollars that they can invest elsewhere in the group. The son already holds 11.3% while the sisters have 3.9% each of SDS.

Lee Kun-Hee’s medical problems have tormented him at a time when he has been under attack in legal cases including bribery while facing legal action by Apple for patent infringement.

Convicted in 1996 for setting up a slush fund and bribery, Lee was sentenced to two years, suspended, and pardoned the next year by then-President Kim Young-Sam. Three years later he began treatment including chemotherapy in Houston for lung cancer — one reason for the respiratory problems he’s suffered ever since.

Convicted again in 2008 for embezzlement and tax evasion while maintaining a slush fund, fined more than $100 million, and sentenced to three years, suspended, for illegal bond trading and tax evasion, he issued an apology, resigning as group chairman while taking “full responsibility” for offenses revealed by a former Samsung lawyer. The lawyer’s book, “Think Samsung,” became a Korea best seller even though the Seoul media refused to publicize it.

Pardoned in December 2009 by then-President Lee Myung-Bak, Lee formally took the title of chairman of Samsung Electronics, the flagship company of the empire, but showed increasing signs of ill health. In recent years he’s been avoiding Korea’s cold winters while staying in Hawaii and Okinawa, the southernmost Japanese island prefecture. Photographs show him looking frail and unsmiling while standing with the help of aides and bodyguards.

Lee has struggled though overwhelming medical and legal battles at a time when Samsung Electronics has grown from a manufacturer of relatively unsophisticated consumer items, including household appliances, to the world’s biggest manufacturer of smartphones.

Lee’s drive and business acumen were recognized by his father, Lee Byung-Chul, who founded Samsung as a trading company and textile manufacturer when Korea was under Japanese colonial rule in 1938. Having sent him to college in Japan, the father selected him as successor over two older brothers. After his father died in 1987, Lee Kun-Hee assumed control of the empire and soon saw the need to remodel the group.

Many years later, in 2012, Lee’s two older brothers revealed their bitterness over his selection, suing him to recover about $850 million worth of shares that they claimed were rightfully theirs under terms of their father’s will. A court, however, threw out the case this year, and the brothers decided not to pursue the issue.

The power of the greater Samsung empire extends far beyond the 80 or so companies of the Samsung group.

Siblings, sons and daughters are also extremely wealthy. The son of the oldest brother is chairman of CJ Group, a powerhouse in fields ranging from film to food, and the son of the next brother is in charge of a media company. A sister has the controlling stake in Hansol, a conglomerate that dominates paper manufacturing in Korea and produces electronics items, and another sister is chairman of Shinsegae, a major department store that also owns Seoul’s famed Westin Chosun Hotel.

It was in 1993, six years after Lee had become group chairman, that he uttered one of his most famous dictums, telling executives and managers at a meeting in Frankfurt, Germany, “Change everything but your wife and your kids.”

With sales last year of  $217 billion, Samsung Electronics has long since outstripped its rivals. Sales for the entire group, including Korea’s second largest shipbuilder after Hyundai Heavy Industries, last year totaled $325 billion, about a quarter of Korea’s total GDP.

While fighting debilitating illnesses, however, Lee has had to guide Samsung Electronics through law suits brought by Apple in California.  In 2012, Apple won $1.05 billion, later trimmed to $600 million. Early this month, Samsung was awarded $120 million for copying Apple.

Now the question is whether Lee will again be able to take charge of Samsung Electronics, much less the entire empire, as it goes through consolidation and restructuring. His heart briefly stopped on Sunday night, and his body temperature has been lowered and then raised again as doctors look for a medical miracle to bring him back to normal health.

At Samsung Electronics headquarters, the tone is optimistic. “On the way to recovery” and “past the critical stage” are two phrases often repeated – but Samsung executives are bracing for change at the top.

 

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