Samsung's 'Crown Prince' and the path to 'succession'

“Everything Samsung Wants”

That is what Fortune magazine once commented about Mr. Lee Jae-yong - who is currently the Vice President of Samsung and also the only son of the late Chairman of the Lee Kun-hee Group. Lee Jae-yong, born in 1968, is also known as Jay Y. Lee. He himself is often called by the Korean media with the nickname "Crown Prince of Samsung" or "Samsung Heir".

According to Forbes' billionaire rankings, Mr. Lee Jae-yong is the third richest person in Korea with a fortune of about 6.7 billion USD, on the list of the most powerful people in Korea.

Samsung Electronics Vice Chairman Lee Jae-yong. Photo: Yonhap

After graduating from Seoul National University and receiving a master's degree in Japan, Lee Jae-yong studied at Harvard Business School for five years before joining Samsung. He is fluent in English and Japanese and has connections to the elite and business people across Asia and the West, so he is expected to strengthen Samsung's diplomatic ties in the future.

Lee joined Samsung in 1991. He started as head of the planning and strategy office and later as chief of the customer service office - a management position created specifically for him. His prospects as a future leader of the group were dimmed when his father resigned as chairman due to tax evasion. However, in December 2009, succession hopes were revived when Jae-yong became CEO of Samsung Electronics.

Slowly, the Lee family changed to increase the responsibility and power of Lee Jae-yong when he was appointed Vice Chairman of Samsung in 2012. However, 2 years later, when the Group was growing strongly, the Lee family faced an unexpected incident. Mr. Lee Kun-hee was hospitalized after a heart attack and lost the ability to work at the age of 72. The "succession" plan began much earlier than expected.

Samsung Electronics Chairman Lee Kun-hee (3rd from left) and his son walk with company employees at the Samsung Electronics office building in Seoul in 2011. Photo: Yonhap

From here, the “Crown Prince of Samsung” took on the role of the group’s operator amid many challenges. First, the Korean government banned cross-shareholding and applied tax incentives for companies to restructure to improve transparency and corporate governance in chaebols (family-owned conglomerates). The situation became more tense after the government of President Park Geun Hye collapsed when Ms. Park was accused of being too close to a number of chaebols, including Samsung.

In early 2017, nearly two years after becoming the de facto leader of Samsung, Lee Jae-yong was charged with bribing President Park and her advisers to approve a merger of two Samsung subsidiaries to protect the Lee family’s control of the empire and avoid a huge inheritance tax. The scandal became a media storm in South Korea. In the “trial of the century” that same year,Lee Jae-yong charged with bribery, embezzlement and perjury and was sentenced to five years in prison. But after serving nearly a year, he was released on appeal and had his sentence reduced.

All of these can be seen as “tests” for the future leader of Samsung, and he has proven his ability to overcome “storms” while continuing to develop the family group. Many people say that Jae-yong does not have the leadership style of his father. But his subordinates believe that hidden behind his calm appearance is a decisive will and perseverance for work. “He is very sharp and has really groundbreaking ideas,” commented a director in Samsung.

Possessing a fairly perfect profile and a handsome appearance, there is not much debate about whether Lee Jae-yong will be the official successor of the Samsung empire.

Samsung Electronics Vice Chairman Lee Jae-yong (2nd left) with his mother Hong Ra-hee and other family members attend the funeral of the late Samsung Group Chairman Lee Kun-hee on October 28, 2020. Photo: Yonhap

Samsung's New Era

Under Chairman Lee Kun-hee, Samsung Electronics Co. became a household name around the world for its flat-screen TVs and sleek smartphones. That chapter closed for the South Korean tech giant on Oct. 25 with the death of Lee. Now the pressure is on his successor, Jae-yong, to usher in a “new era” for Samsung.

However, the takeover of this giant corporation is certainly not smooth and Mr. Lee Jae-yong may have to wait longer to sit in the top chair at Samsung.

First, Mr. Lee is embroiled in allegations of bribery and using accounting “tricks” to “lubricate” the succession process. Although he denies any wrongdoing, Mr. Lee faces the possibility of going back to prison if convicted. Therefore, Samsung may delay appointing Mr. Lee as Chairman of Samsung Electronics, at least until the first trial ends in the next few months, to avoid the prospect of the new Chairman going to jail. Of course, during this period, Mr. Lee, as Vice Chairman, still has the power to make far-reaching strategic decisions for the group.

Samsung's smartphone market is recovering after five years of decline, but the company faces new challenges with chips. Photo: AP

Second are the procedures related to inheritance. The late chairman Lee, South Korea’s richest man, had a net worth of more than $20 billion, most of which was his stake in Samsung. Korean law stipulates a tax rate of up to 60 percent on inherited shares from major shareholders, and a tax rate of up to 50 percent on real estate and other inherited assets. Accordingly, the Lee family could have to pay an inheritance tax of up to $10 billion, which would be the largest inheritance tax bill ever in South Korea. Most chaebols choose to pay taxes in cash rather than shares to maintain their power, but such a huge sum is a difficult problem.

According to experts, although there are still many obstacles, the "Samsung Crown Prince"'s "succession" is only a matter of time. Samsung does not expect any other major changes because the group is facing a series of challenges from emerging competitors as well as building a long-term strategy. To best prepare for the future of leading the group in a "legitimate" way, Lee Jae-yong will have to prove that he can manage the Samsung empire and bring it into a "post-Lee Kun-hee" era.

Many economists say that Jae-yong has a more expansive management strategy than the late Chairman Lee Kun-hee's philosophy of "Change everything except your wife and children." In fact, he has contributed actively to Samsung's successes such as the Galaxy smartphone line. The large-screen phone segment helped the group "make a fortune" until Apple realized its mistake and launched the iPhone 6 and 6 Plus.

Prime Minister Nguyen Xuan Phuc received Mr. Lee Jae Yong, Vice Chairman of Samsung, on October 20 when he visited Vietnam and Samsung's production facilities, along with strong investment commitments. Photo: VGP

As vice chairman of Samsung at a time when the group was struggling, Lee Jae-yong “scored many points” for implementing major reforms. Incompetent leaders were transferred to other positions or fired. At the same time, he focused on mergers and divestments of unprofitable businesses such as chemicals and military. Recently, Samsung’s vice chairman chosesmart self-driving car segmentas one of the next key growth areas. Analysts say this move is a step in the right direction, adding opportunities to the losing mobile phone sector and strengthening Samsung's sustainable growth.

It is not yet clear what Samsung's future strategic direction will be and what Lee Jae-yong can do to escape the "halo" left by his father, but if he is determined to "be recognized as the leader of a leading global company", as he testified in a recent court hearing, this successor can create a new era for Samsung.