April 23 (Bloomberg) -- Samsung Group Chairman Lee Kun Hee lauds global business standards, ethical management and accounting transparency in his ``CEO message'' posted on the corporate Web site.

``If we are careless in our execution or complacent with what we have accomplished thus far, we could easily tumble to the bottom in a flash,'' writes Lee, 66, who has overseen South Korea's biggest family-run conglomerate, or chaebol, for two decades.

While Lee's indictment last week on charges of breach of duty and evading about $113 million in taxes blunted his ethics push, the announcement yesterday that he and other top Samsung executives will step down puts more at stake. The chaebol model itself -- criticized by outsiders as a closed network even as it poured investment into the economy -- may be unraveling, according to some analysts.

The announcement signals ``an end to the era of the Masters of the Universe,'' says Tom Coyner, who helps advise foreign investors in Korea as president of Soft Landing Consulting Ltd. in Seoul. ``The resignation by Chairman Lee Kun Hee is unprecedented.''

Samsung's presence in the nation's economy is huge. Its 59 subsidiaries -- led by the flagship Samsung Electronics Co., Asia's largest maker of mobile phones, chips and televisions -- made up about 18 percent of South Korea's 2006 gross domestic product of $888 billion. Now, management of the group that has guided strategy for the chaebol for decades is in doubt.

Son Reassigned

``The Samsung Group companies will get their competitive strength tested at both a local and global level,'' said Kang Shin Woo, who oversees $8.7 billion as chief investment officer at Korea Investment Trust Management Co. in Seoul. ``Now that they may be run somewhat more independently of each other, we'll have to wait and see how well they do.''

Group Vice Chairman Lee Hak Soo and President Kim In Joo will quit by the end of June, Samsung said in the statement yesterday that brought news of Lee Kun Hee's departure. The group's strategic planning office, which controls group operations, will be dismantled and Samsung may turn into a holding company, the statement said.

The chairman's son, Lee Jae Yong, will be reassigned overseas. The charge of breach of duty arose because Lee Kun Hee caused losses at Samsung by helping his son gain control of group units, according to prosecutors.

The resignations create a vacuum atop a business empire that was started in 1938 by Lee Byung Chull, Lee Kun Hee's father. The current chairman's departure will leave Samsung affiliates under independent management, according to Samsung.

No Bribery Found

The tax evasion and breach of duty charges resulted from a probe that began in January after Samsung's former chief lawyer, Kim Yong Chul, issued public allegations of financial irregularities. Other Samsung executives were charged with similar offenses, including Lee Hak Soo, 61, and Kim In Joo, 49.

Prosecutors said that the strategic planning office was involved in managing about 4.5 trillion won ($4.5 billion) in funds and helping the transfer of control to Lee Jae Yong. Prosecutors said they found no evidence of Kim Yong Chul's central allegation -- that the group diverted funds to bribe government officials and journalists. Kim had alleged that the planning office directed the purported bribery operations.

``I'm truly sorry for causing so much concern with the investigation,'' Chairman Lee, who hasn't admitted or denied the charges, said in a televised press briefing yesterday. ``I will assume full legal and moral responsibility.''

`Passion and Competency'

The family-controlled chaebol emerged in Korea after Park Chung Hee, who seized the country's presidency through a military coup in 1961, promoted industrialization through multiyear economic plans. The International Monetary Fund cited the chaebol's debt-driven practices as part of the reason the economy landed in a financial crisis at the end of 1997.

Still, the chaebols' contributions to Korea's economy shouldn't be overlooked, said Kim Young Joon, head of equities at of NH-CA Asset Management in Seoul.

``Cultivating a group like this calls for a lot of passion and competency,'' said Kim, who oversees the equivalent of $2.2 billion. ``The owner has committed some missteps along the way, but we shouldn't scream for an immediate breakup of the chaebol because of those faults.''

The chaebol have long had close ties to the government, and some politicians who favor greater limits on the industrial groups call Korea the ``Republic of Samsung.''

Recruiting From Government

The chaebol recruit government officials or ex-prosecutors to lobby for them, says Cho Seung Min, a former researcher at the Institute of Public Policy and Administration at Chung-Ang University in Seoul. Lobbying is unregulated, he says.

Lee's family controls group units through a maze of cross shareholdings. For example, the chairman and related parties own 36 percent of Samsung Life, which in turn is the biggest shareholder of Samsung Electronics, according to regulatory filings. The chairman's son is the second-largest owner of Samsung Everland Inc., the group's de facto holding company.

``The crossholdings allowed the owner, who actually held only a small portion of the shares, to wield unrivalled power,'' said Kim of NH-CA. ``Severing those crossholdings and switching to a holding-company structure would help direct a company's cash to itself and to shareholders, rather than funding the next group-level venture. Each company would also choose new investments more carefully.''

Prior Conviction

Chairman Lee was convicted in 1996 for bribing ex-Presidents Chun Doo Hwan and Roh Tae Woo, drawing a two-year prison term that was suspended for three years. He was pardoned by President Kim Young Sam a year later.

Prosecutors in 2005 had investigated whether Lee and other company executives used corporate funds to pay presidential candidates. He was later cleared.

The chairman took the helm in 1987 after the death of his father, who founded Samsung as a four-story wooden store selling groceries in the southern city of Daegu.

By 2006, Samsung Group's overseas sales were $70 billion, or 21 percent of the country's exports. It had assets of 144.4 trillion won, in line with the total assets of Hyundai Motor Group and SK Group, Korea's second- and third-largest chaebol.

Samsung Electronics, based in Suwon, will probably report on April 25 that first-quarter net income rose 27 percent to 2.04 trillion won, according to the median estimate of 16 analysts surveyed by Bloomberg.

Lee's resignation contrasts with Hyundai Motor Co. Chairman Chung Mong Koo, who has kept his position even as he faces a retrial for embezzlement. Chung was convicted last year.

Anti-chaebol groups remain unconvinced that the changes announced yesterday will enhance Samsung's transparency.

``We hardly believe there will be any real improvement in the group's corporate governance,'' Solidarity for Economic Reform, a Seoul-based civic group, said in an e-mailed statement.

To contact the reporters on this story: Kevin Cho in Seoul at kcho2@bloomberg.net; Kyung Bok Cho in Seoul at kcho7@bloomberg.net.

Last Updated: April 23, 2008 00:57 EDT