Governance

Is Samsung on a collision course with South Korea’s government?

Samsung is the 14th biggest company in the world, according to Fortune’s Global 500, with revenues of $208 billion in 2014. This amounts to a staggering 25% of the South Korean economy where the conglomerate is based. It’s also a family business – and one that is under increasing scrutiny in terms of its governance and monopolistic tendencies.

Recently, the Lee family, which control Samsung through a complex web of cross-holdings which give them around 42% holding in the Korean behemoth, has been tightening the family’s hold on the business. Heir apparent third generation Lee Jae Yong, the son of Samsung’s patriarch Lee Kun Hee, who is still recuperating from a heart attack he suffered a year ago, looks to be positioning himself in a strategically more powerful position.

Lee, 46, recently led the $9.4 billion buyout of Samsung C&T by Cheil Industries, the family’s de facto holding company, and has taken up chairmanship roles in a number of Samsung-linked charitable foundations, replacing his father. Cheil Industries has holdings in most of the 74 Samsung subsidiaries and affiliates, securing the family’s control of the huge corporate empire.

Although big family controlled companies have been criticised from time to time for their size and power, none of them is as big as Samsung in terms of their dominance of the economies where they are based. And, for the most part, they don’t have their governments putting pressure on them to break up their empires.

That could be a problem. South Korean president Park Geun Hye wants to rein in the influence of the country’s family-controlled chaebols, and Samsung is at the top of the government’s list. Park and many other Koreans say the chaebols stifle economic innovation and creativity, and are concerned about the long-term consequences of such dominance on the local economy.

The question is: can policymakers really do anything? The Lee family see it as their natural right to preside over Korea’s biggest business in perpetuity. Inevitably, the conflict between the two sides will increase – and, given the influence and power of the Lee family the outcome doesn’t necessarily favour the government.

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