On Saturday, the 72-year-old chairman of Samsung Group, Kun-hee Lee, was reportedly taken to Soon Chun Hyang University Hospital in Seoul after suffering a heart attack.
As Lee recovered in a nearby Samsung medical centre after surgery, the question of succession planning in one of South Korea’s most powerful business dynasties took on a newfound urgency. And when it comes to Samsung, succession is a question with billions of dollars and a national economy at stake.
To many in the West, including many tech reporters, “Samsung” is synonymous with Samsung Electronics, best known as the maker of the popular Galaxy series of Android-based smartphones and tablets.
It’s just a family business
However, Samsung Electronics is just one company in the Samsung Group, a sprawling network of affiliated businesses and joint ventures, some publicly listed and some private, connected through inter-locking and sometimes circular shareholdings. There are around 80 affiliated companies in total, spanning a number of different industries, estimated by some to account for around one-fifth of South Korea’s GDP in total.
Affiliated companies include the world’s second biggest shipbuilder (Samsung Heavy Industries), the defence contractor responsible for building the K9 Thunder tanks patrolling South Korea’s border with the North (Samsung Techwin), as well as the construction firm that built the world’s tallest building (Samsung C&T).
Often, these affiliated businesses are highly vertically integrated with one another. For example, your Samsung Electronics-built smartphone includes apps hosted by data centre operator Samsung SDS, a Samsung Display screen, a Samsung SDI battery and Samsung Semiconductor chips. That Samsung Display, in turn, includes Samsung Corning Glass, while the chips and batteries are fabricated with chemicals from Cheil Industries.
As I discussed in a previous column, there’s a good reason why you can’t directly compare Apple to Samsung.
Some family history
It’s a sprawling family business empire, or chaebol, that was founded by Kun-hee Lee’s father, Byung-chul Lee, in 1938. The diversification came about as a result of the industrial development policies of a former South Korean President named Chung-hee Park, who (prior to his assassination in 1979) offered South Korea’s leading business families inducements for expanding their businesses into new, nationally significant industries.
When Kun-hee Lee took over the empire following his father’s death in 1987, it was mostly known as a high-volume producer of low-quality goods. Upon taking control, It was Kun-hee who changed the group’s management culture, urging executives to “change everything except their wife and kids” in order to make Samsung the leading global brand it is today.
The keys to the family empire
The foundation stone this family empire is Samsung Everland. Aside from owning hotels, golf resorts and the Everland theme park in Seoul, the company also functions as the Lee family’s holding company for the entire Samsung empire.
As of December 2013, Samsung Everland held 19.34% of the shares in insurance company Samsung Life, with Kun-hee Lee holding a further 20.76%.
In turn, Samsung Life holds a little over 7.5% of Samsung Electronics, a stake crucial to keeping the consumer electronics giant in the Lee family orbit.
Ownership of these three businesses (Samsung Everland, Samsung Life and Samsung Electronics) is, in turn, central to control of the rest of the family empire. In turn, who controls them is likely to be crucial in determining which of Lee’s children inherits the family’s massive fortune.
What happens next?
As SmartCompany reported last month, Samsung has recently realigned a number of its affiliated companies, with the officially stated aim being to lessen the group’s reliance on Samsung Electronics.
However, as Hi Investment analyst Sang-hun Lee said in the Korea Times, the moves also had the side effect of keeping key parts of the empire under family control.
“Samsung vice chairman Jay-yong Lee will handle electronics, and finance affiliates, while the chairman’s oldest daughter Boo-jin Lee and youngest Seo-hyun Lee will take over the group’s hotel, heavy industries and fashion and media businesses, respectively,” said Sang-hun Lee said.
Who manages to gain control, and what happens next, will be fascinating to watch.