Samsung Electronics, the crown jewel of the Samsung group, has reported record profits despite Lee’s arrest in February and a damaging recall for Galaxy Note 7 phones that were prone to battery fires. The financial success was largely thanks to events set in motion by Lee’s father in the 1990s. The elder Lee made the decision to break into the memory chip industry and followed up with massive and risky investments that rivals could not match every year.
Those investments are paying off. Samsung, the world’s largest maker of memory chips for servers, mobile devices and computers, was the biggest beneficiary of supply constraints and explosive demand for mobile devices that pushed up prices.
Longer term, however, some analysts see risks for Samsung and its flagship Samsung Electronics.
“South Korea’s chaebol system is similar to monarchy,” said Park, the Seoul National University professor. “In the monarchy system, you need a king.”
There is also potential for a destabilizing family feud over inheritance when the elder Lee dies.
Over the past seven years, our firm, W+B Family Business advisory has been spearheading family and business governance in Asia.
Most of our alliance partners in the business sector and the academe in North America, Indonesia and Singapore have referred to our vigorous campaign as “relentless”.
In our head office, we modestly refer to our work as the “W+B Method”. International clients have acknowledged our method as best in class and we solely look at it as our compelling value proposition.
Why is W+B vigorously campaigning to promote Governance?
It is a race against time. We have witnessed first-hand, emotionally charged families being torn apart because of rivalry, greed, envy, vengeance and sometimes senseless loss of human lives.
There have been quite a number of cases where family members would “kidnap” a parent allegedly suffering from dementia in order to prevent an asset sale or overthrow a sibling in power or seeing siblings conspire in forging documents so they can surreptitiously sell assets.
I have experienced several cases where I had to enforced disciplinary action and initiate expulsion of family members engaged in self-dealing, conflict of interest transactions and in rare cases absconding with large amounts of money.
These are unfortunate but live cases of family conflict! When the battle lines are drawn, you can expect discord among family members, sometimes violent confrontations, parents inconsolable and confused, and the business on the brink of a major setback or at worse, imploding.
Without any doubt, as Family business advisors, we have the herculean responsibility to intervene and affect the governance process because it is the way forward and the right thing to do.
To quote a Bloomberg report related to the never-ending family drama unfolding at Samsung:
“Sabotage, espionage, succession battles, and sibling rivalries — it sounds like a season of “Game of Thrones.” But it’s the real-life drama of the Lee family, the Korean dynasty that founded Samsung with wealth equal to 17% of the country’s GDP.
It’s a fragile situation. If successor Lee Jae doesn’t navigate this right, there are family members waiting to take his spot.“
Currently, Lee Jae is in jail and family members and non-family shareholders are allegedly plotting separately to let him stay in jail for good.
Governance Intervention Must Be Holistic
Our coaching interventions are straightforward. As a Senior Advisor, my role is to articulate very important and purposive set of ideas and beliefs before any actual engagement. The key is to educate and prepare members for the journey toward corporate governance.
Educating family members is critical. The willingness and readiness of every family member to go through the process is equally vital.
Finally, the advisor’s role is to underscore the importance of embracing pre-work rules before starting the process of change. These are the following:
a. Governance and Succession is non-negotiable.
b.Size of the business is immaterial.
c.The bigger the number of family members, the more complex it can become.
d.Intervention should be on the 3 circles (Family, Business and Ownership). Each circle has its own unique characteristics so a tailor-fitted approach must be in place.
e.Procrastination is like a thief of time. Delaying governance further can increase the volatility of the family and the business.
f.Age is a factor. As the founder and the business leader ages, succession and related issues in a multi generational family can offer more challenges.
g.Compliance of the rules and activation of the Governance Councils as enshrined in the constitution is non-negotiable.