Samsung Promotes Scions as Lee Family Shows Resilience of `Chaebol' Model

Samsung Electronics Co., the world’s largest maker of televisions and flat screens, promoted the chairman’s son to president as the founding family tightens its grip on South Korea’s biggest industrial group.

Lee Jae Yong, 42, will report to Chief Executive Officer Choi Gee Sung, Samsung Group said in a statement today. His sister, Lee Boojin, 40, was named president of Samsung Everland Inc., chief executive officer of affiliate Hotel Shilla Co. and adviser to Samsung C&T Corp.

The promotions pave the way for Lee and his sister to prove their ability to lead a group of nearly 70 companies generating annual sales of about $200 billion. The move also highlights the resilience of the family-run “chaebol” business model, which has spearheaded South Korea’s industrialization since the 1960s and been blamed by the International Monetary Fund for pushing the country into financial crisis in 1997.

“We really don’t know what goes on in terms of governance at Samsung because there’s so much done behind closed doors,” said Tom Coyner, who helps advise foreign investors in South Korea as president of Soft Landing Consulting Ltd. in Seoul. “The results to a large extent speak for themselves.”

Samsung Electronics, the group’s flagship unit, climbed 4.1 percent to a record high of 894,000 won at the 3 p.m. close of trading in Seoul. The benchmark Kospi index rose 0.4 percent.

Source: Samsung Electronics Co. via Bloomberg

Lee Jae Yong, president of Samsung Electronics Co. Close

Lee Jae Yong, president of Samsung Electronics Co.

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Source: Samsung Electronics Co. via Bloomberg

Lee Jae Yong, president of Samsung Electronics Co.

Samsung Group’s 67 affiliates generated 220 trillion won ($193 billion) in sales last year, equivalent to a fifth of South Korea’s gross domestic product, according to figures from the Fair Trade Commission and the Bank of Korea.

Management Overhaul

Samsung Electronics CEO Choi will also be vice chairman, according to the statement. Samsung Mobile Display CEO Kang Homoon was named vice chairman of Samsung China Headquarters and will be replaced by the head of the head of Samsung Electronics’s memory-chip business.

Park Sang Jin, head of the digital imaging division at Samsung Electronics, was named CEO of Samsung SDI Co., replacing Choi Chihun, who will become CEO of Samsung Card Co.

Lee Jae Yong, who studied at Harvard Business School and Japan’s Keio University, joined Samsung Electronics in 1991. His roles in the company have included being the chief customer officer and vice president at the strategic planning division. He was promoted to executive vice president and chief operating officer in December 2009.

“There are no real achievements that show off his management skills,” said Lee Jin Woo, a fund manager at KTB Asset Management in Seoul. “As long as he can show he’s capable, family management won’t be an issue.”

Sibling Leaders

Samsung said that as COO, Lee has strengthened relationships with key global customers and business partners and helped solidify Samsung’s chip and display businesses by leading preemptive business investments.

“He is expected to continue to strengthen the competiveness of Samsung’s strategic businesses and to lay the foundation for Samsung’s future new growth businesses,” according to the statement.

His sister is credited with playing a “pivotal” role in improving profitability at Hotel Shilla and Samsung Everland, according to Samsung.

Under their father Lee Kun-Hee, who’s led the group since he took over from his father in 1987, Samsung Electronics shares have jumped more than 70-fold, surpassing the market values of Hewlett-Packard Co., Sony Corp. and Texas Instruments Inc.

Olympic Pardon

The chairman returned to Samsung after he received a presidential pardon over a conviction of tax evasion so he could help Korea’s bid to host the 2018 Winter Olympics. He stepped down and dismantled the group’s central strategic planning office in 2008 after the tax evasion charge and claims that he breached his fiduciary duty by causing losses at Samsung Group.

Lee Jae Yong’s promotion marks Samsung’s return to its former “closed governance” system,” the Citizens’ Coalition for Economic Justice, an activist group, said in a statement.

The appointments come at a time when a family feud between Hyundai Group and Hyundai Motor Group over the control of Hyundai Engineering & Construction Co. is reviving investor concern over the chaebol.

LG Electronics Inc. brought in a member of the founding family in September by naming Koo Bon Joon, a younger brother of LG Group Chairman Koo Bon Moo, as the chief executive officer.

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

To contact the reporters on this story: Jun Yang in Seoul at jyang180@bloomberg.net; Shinhye Kang in Seoul at skang24@bloomberg.net;

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net.

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