How Tycoons Fall
Lee, B. J., Newsweek International
Byline: B. J. Lee
Lee's departure has forecasters predicting big changes for family business empires. Again.
The resignation of Lee Kun-hee, the king of Korean tycoons, has been heralded as a turning point for the patriarchs of Asian business. Lee seemed untouchable, protected by the success of his creation, the Samsung Group. If he could be forced by tax-evasion and breach-of-trust charges to bow to the public in apology, to leave his company post, taking his wife and son with him, then surely an end is in sight for family business empires.
During his 21-year rule, Lee turned Samsung Electronics, the group's flagship, into a global technology leader, raising sales by a factor of nine, profits by 53. He made Samsung bigger than Sony, a victory for South Korea over its old colonial rulers in Japan that made Lee a national hero, particularly for Koreans of a certain age. He created a conglomerate that accounts for 18 percent of South Korean GDP. In his resignation speech, he apologized for failing to deliver on a promise to bathe South Koreans in the reflected glory of Samsung's global status as a "first-class business." His departure suggested to many that South Korea's maturing democracy would no longer allow good numbers to justify any business practices.
But we've seen this forecast many times before, ever since the cracks in the family model became apparent in the Asian financial crisis of 1997-98. The first came after the early collapse of Daewoo and the flight of its founder, but here we are 10 years later, and the Lees are only now exiting Samsung--presumably to be replaced by professional managers, more open and democratic corporate governance and all the other reforms foreseen so often. With Lee's son, Jay-yong--once his heir apparent as Samsung chairman--now packed off to emerging markets and reportedly told he will have to work his way back to the center of power, experts are predicting (again) hard times for scions. This will strongly affect father-to-son successions at other Korean conglomerates, notably Hyundai Motor, they say. "Children of top tycoons cannot automatically assume leadership," says Kim Seung Hyun, an analyst at Woori Investment & Securities. "They have to prove themselves first."
This may happen, slowly: Lee really had no choice, dogged as he was by whistle-blower charges of bribes to politicians, prosecutors, bureaucrats and journalists, dodging taxes on $4. …