The arrest
of Samsung Group scion Jay Y. Lee on bribery charges could hamper decisions on
strategic investments and acquisitions at the sprawling conglomerate, insiders
and former executives say, even with a strong leadership bench at its many
businesses. Although business at flagship Samsung Electronics (005930.KS) is
humming along, big calls will need to be made and the man most likely to be
called upon to make them is Choi Gee-sung, the No.2 lieutenant at Samsung Group
and a mentor to Lee.
"Choi is very experienced and has done a
good job. He is the one best placed to manage group-level affairs in Lee's
absence," said one Samsung insider.While Samsung Electronics is still
smarting from the debacle of its exploding Galaxy Note 7 smartphone batteries,
its semiconductor business is in rude health. Its share price is up around 60
percent in the past year.
But the wide-ranging probe, part of a
corruption scandal that led parliament to impeach South Korean President Park
Geun-hye, has been a major distraction for the country's largest conglomerate,
or chaebol.
"Everything has virtually stopped,"
said a second executive at Samsung Group's powerful strategy office that Choi
heads. "We're mainly focusing on the prosecutor's investigation (into Lee
and Samsung)... We'll be running an emergency plan and everything will be under
Choi's control for now." But some others say even Choi's role could be
limited and Samsung may have to rely more on each affiliate's top management,
with Choi also under investigation by special prosecutors.
"Since we've decided to dismantle group
strategy office, Choi's role is likely to gradually decrease, although we can't
say for how much and when," another Samsung executive said. A fourth group
insider said: "We have a system in place with professional management
teams, so in terms of the day-to-day operations things should be fine."
None of the Samsung individuals wanted to be
identified due to the sensitivity of the matter."It's not like Samsung
businesses will grind to a halt. There are many smart people at the
company," said Kim Yong-serk, a former Samsung Electronics executive who
is now a professor at Sungkyunkwan University.
But arrest of Lee, 48, will have an impact on
longer-term investment decisions at the sprawling conglomerate."Samsung
presidents are evaluated on an annual basis, so they can't make bold bets about
the future. They need a chairman for that," Kim said. Samsung declined to
comment on its management plans or Choi's role.
***Beating
Apple***
When Samsung Electronics still trailed Nokia
in mobile phones - just five years ago - Choi, then CEO, set his sights on a
different rival. "Competition is coming from elsewhere. There's a company
more profitable than us and we should change our target," he told Reuters
in January 2012, referring to Apple Inc (AAPL.O).
That year, Samsung ended Nokia's 14-year
domination of the mobile market, ultimately also overtaking Apple as the
world's biggest smartphone maker.In a Samsung career spanning more than three
decades, Choi has worked in all the main businesses, from semiconductors and
home appliances to TVs and telecoms, before taking over as chief executive.
As head of strategy, 66-year-old Choi has
acted as Jay Y. Lee's mentor and been closely involved in preparing the path
for him to take over from his father, who was incapacitated by a heart attack
in 2014. Under Choi's guidance, Lee has moved closer to succeeding his father
in a well-choreographed long-term plan, including a restructuring of the
conglomerate to cement the Lee family's control.
However, that plan included a controversial
$8 billion merger of two Samsung units that has been central to prosecutors'
case against the group, and Lee. Prosecutors accuse Samsung of paying bribes
totaling 43 billion won ($37.74 million) to organizations linked to South
Korean President Park Geun-hye's friend, Choi Soon-sil, to secure government
backing for the merger. Choi Gee-sung and his deputy Chang Choong-ki
were quizzed by prosecutors over their role in the deal.
***Step Up
For ‘Mr Chip’,Too?***
Lee's absence, ahead of what could be a
lengthy trial, could also see a bigger role for Kwon Oh-hyun, Samsung
Electronics' vice chairman and current CEO.Known as "Mr Chip", Kwon
has overseen the growth of Samsung's component business, which now generates
much of the firm's profits.
"Kwon is very practical manager. Like
many Samsung managers in the component business, he doesn't feel comfortable
(in the limelight)," said an executive who worked with him. Kwon, who
studied electrical engineering at Seoul National University and at Stanford,
cemented Samsung's position in memory chips and expanded the contract chip
manufacturing business, producing chips that power the Apple iPhone.
But, for all the experience and qualities
these senior managers bring, Lee's absence will still be felt. Lee had been
instrumental in seeking to drive growth through new businesses, including
signing off on South Korea's biggest outbound deal: an $8 billion acquisition
of U.S. auto electronics maker Harman International Industries (HAR.N).
"The biggest problem is that Lee is the
one who sets the direction of Samsung as a whole," the fourth group
insider said. "He doesn't get into every business decision, but he's the
one who has to sign off on major investments or acquisitions... That's why he
can't easily be replaced."
0 Comments