A few weeks later, Lee was named Samsung’s chief customer officer–a first step, observers say, toward taking the helm. The move highlighted a paradox at the heart of South Korea’s booming business culture. Its conglomerates are vigorously modernizing, adopting cutting-edge practices and spreading operations around the world; Samsung, for example, now earns 90 percent of its $57 billion in annual sales overseas. Yet the very leaders, like Lee, who are speeding the process forward are taking power in the most traditional–some say backward–way: they’re getting their jobs from their dads.
Lee’s ascension was just the latest example. Hyundai Motor made Chung Eui Sun, son of its chairman, president of its sister company Kia Motors two years ago, and Korean Air and Asiana have made similar moves. Already, the new guard is transforming the way South Korea works. Most of the young princes were educated at U.S. business schools, and they’re abandoning their fathers’ practices for contemporary Western management styles.
This means no more crony capitalism or nepotism (except, of course, when it comes to their own jobs), and no more risk-taking on personal whims. Instead, the new leaders preach careful calculation and scientific research. In their hands, “Korean companies will move from high risks and returns to moderate [ones],” says Namuh Rhee, head of research at Merrill Lynch in Seoul. “They are much more careful and calculating than their fathers.”
Samsung’s record highlights how the new approach may be less dramatic but much safer than the old one. Under Lee’s father, Samsung spent the ’80s and ’90s aggressively investing in cutting-edge areas like semiconductors. These investments paid off, making the company a global leader in digital technology and earning profits last year of $7.5 billion. But such speculative investments can be dangerous in this day of rapid and unpredictable technological change. Lee seems to have found a solution, creating joint ventures to help share risk, such as Samsung’s collaboration with Sony four years ago to make flat LCD TV panels. Today the partnership leads the global market.
Expect similar moves from other top firms. At Hyundai, for example, the elder Chung rapidly expanded his business by building factories overseas. His son, however, has slowed the expansion. Meanwhile, other Korean companies where sons have taken the reins, such as the retail giant Shinsegae and the heavy-industry group Doosan, have also shifted toward more careful, but sophisticated, business models–with remarkable success. That’s because, according to Prof. Yoon Chang Hyun of the University of Seoul, the young guard “can read global trends.”
Perhaps. But there’s a downside, say critics, to these father-son successions: they have everything to do with family and nothing to do with ability. Civic groups have protested interfamily management transfers at Samsung and other top companies, and a legal case is now pending against the Lees for not paying enough inheritance taxes. It’s not just a question of fairness, as activists point out, it’s bad business. Korea’s conglomerates have a history of corruption and other vices; they need professional managers, not family members, to clean them up.
President Roh Moo Hyun came to power four years ago promising to rein in Korea’s corporate excesses. But his regulatory policies have weakened the economy by discouraging investment, making reform much less popular. That trend may continue if Korea’s new corporate leaders deliver results. “Despite much controversy, Korean conglomerates have so far proven to be effective,” says Yoon. “Their strong family leadership brought profits and made us rich.” Everything, therefore, rides on the bottom line. Jay Lee might be more subtle and telegenic than his dad, but he still has to bring in the money.
