Another Shakeup at Samsung

A new CEO is anointed to head the Korean tech giant in the wake of Chairman Lee Kun Hee's exit. Is this real changeor seatwarming for Lee's son?

It will be a season of leadership test for Samsung Electronics. The largest South Korean company said on May 14 that its respected chief executive officer, Yun Jong Yong, had stepped down. Yun's departure comes only three weeks after Group Chairman and co-CEO Lee Kun Hee resigned. Although analysts had thought the 64-year-old Yun would retire sooner rather than later, analysts had speculated he could stay on for a while, following the surprise resignation of the chairman who was indicted last month (BusinessWeek, 4/22/08) on charges of tax evasion and breach of fiduciary trust.

The new CEO of the world's largest maker of memory chips, TVs, and liquid-crystal-display panels is Vice-Chairman Lee Yoon Woo, who headed the company's semiconductor business from 1996 to 2004. The new chief, who also served as Samsung's chief technology officer for two years ended in 2007, is a 31-year veteran of the company. (He has no personal relations with the outgoing chairman.)

Yun's departure and Lee's appointment were two parts of today's bigger management shakeup. Samsung also announced the replacement of President Hwang Chang Gyu, head of the semiconductor division, with Kwon Oh Hyun, who has been running the non-memory chip business. Hwang will become the new chief technology officer.

Rich Talent Pool in Semiconductors

Some investors believe Samsung Electronics will continue on the same path, regardless of the overhaul. "The reshuffle won't herald a major shift in strategy, at least in the foreseeable future," figures Park Kyung Min, chief executive at fund manager Hangaram Investment Management. "Yun had been expected to step down for some time and Chairman Lee had not been involved in Samsung's day-to-day operation anyway." He also notes that although Hwang was widely credited for Samsung's leadership in the memory-chip industry, particularly in the NAND flash chips widely used in mobile gadgets such as music players and digital cameras, the Korean company boasts a rich talent pool in its semiconductor unit.

Few doubt the Lee-Yun leadership combination scored tremendous successes in the past decade. Chairman Lee, who rarely turned up in the corporate headquarters but regularly presided over meetings of top executives at his home office, set strategic direction while Yun took charge of executing needed changes. Yun, who was a co-CEO over the past 11 years, also headed the restructuring following the 1997 Asian financial crisis. That helped catapult Samsung, which had been a second-tier maker of TVs and appliances, into the ranks of the world's top electronics brands.

Yet Park and other Samsung watchers point out the company has now put in place a management system where each of its four main business divisions draws up and implements its own business plan. "As an elder of the company, Mr. Lee Yoon Woo should be able to play a coordinating role well," says Song Myung Sup, electronics analyst at brokerage CJ Investment & Securities. Unaffected by the shakeout were Choi Gee Sung, who heads the handset business, the world's second-largest after Nokia (NOK); Park Jong Woo, in charge of the TV and digital media business; and Lee Sang Wan, the LCD business chief.

Warming the Seat for Chairman Lee's Son?

Samsung execs say the shakeup reflects the company's efforts to develop future areas of growth. Senior Vice President Rhee In Yong says Yun offered to step down to "let his junior colleague take over…to find a new momentum" after Chairman Lee spoke of the need for reform (BusinessWeek, 4/17/08) last month.

Nevertheless, many analysts don't see the new CEO, who turns 62 in June, as a leader guiding the company to the next stage of growth. "Samsung is in for a longer-term leadership change," figures Kim Sun Woon, head of the Center for Good Corporate Governance, an independent group pursuing better governance of Korean companies. "Lee Yoon Woo could be a seat warmer for Chairman Lee's son, but my personal hope is that he will help lay some groundwork for a more sustainable management system to make the company independent from other group companies."

Chairman Lee's son, Lee Jae Yong, 39, who earned an MBA at Japan's Keio University and studied at Harvard Business School, has been groomed as Samsung Electronics' future chief. But after investigators accused the chairman last month of evading taxes as part of a scheme to transfer management control to his son, senior company officials said the son would step down as its chief customer officer and stay overseas to gain more experience. "If the son can prove himself in one way or another he will probably return home to take over as the leader. Otherwise he might have to remain as just a major shareholder," Kim says.

The Weaker Won is a Plus

Shareholder activists have criticized the 66-year-old chairman and his relatives for what they call the Lee family's near-absolute control of Samsung Group's 59 affiliates, ranging from insurance and brokerage services to shipbuilding and chip-making, even though the Lees only have a sliver of shares of the group. The family managed to retain the tight grip because reforms in the past decade have tackled accounting and finances in listed companies but have done little to limit the founding family's control via tangled cross-shareholdings of affiliates, some of them held privately.

In the short term, however, Samsung's outlook remains solid thanks to its strength in TV, LCD screens, and handsets. The company is also getting a boost from a weaker Korean currency and robust demand. Its long-suffering chip division is also expected to turn the corner by the second half after suffering during an industry-wide downturn, according to Kim Soo Kyoum, semiconductor program director at researcher IDC. "The current difficulties of the memory-chip industry are widening the gap between cash-rich leader Samsung and its competitors and Samsung is bound to benefit hugely when the industry begins to recover," he says.

Investors seem to share such optimism. Samsung Electronics' stock price, which ended 0.4% higher, at $707.9 on May 14, has gained 33% so far this year. CJ Investment & Securities forecasts the company's operating profits will rise 94%, to $11 billion, this year on sales of $76.1 billion, up 25% from last year.

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