Latest / Family Business Stories with Fexingo: Succession, Legacy, and Multi-Generational Companies / How the Richest Family in Korea Built Samsung
Transcript
- Lucas: If you think about the richest family in Korea, you probably think of the Lees. And the company they control, Samsung, is not just the biggest conglomerate in Korea—it is the biggest conglomerate in the world by revenue, bigger than Apple, bigger than Amazon. Luna: And the family owns only about 2 percent of the shares, yet they control the entire group. How does that work? Lucas: That is the central puzzle of the Samsung story. And it starts not in Seoul, but in a small town called Daegu in 1938. Lee Byung-chul, the founder, started a trading company exporting dried fish and vegetables to China. Within a decade he had a sugar refinery, a textile mill, and a newspaper. Luna: So the founder was already diversifying before the Korean War even ended. Lucas: Exactly. By 1960, Samsung had a department store, an insurance company, and a fertilizer plant. But the turning point came in 1969, when Lee Byung-chul decided to enter electronics. His advisers told him it was a mistake. Korea had no semiconductor industry, no consumer electronics base. But he visited Japan, saw what Sony was doing, and built a factory making black and white televisions. Luna: And now semiconductors are Samsung's single biggest profit driver. Lucas: Exactly. But the founder's biggest challenge was not the market—it was succession. He had three sons, and he chose the youngest, Lee Kun-hee, as his heir. This was unusual in Confucian Korea, where the eldest son traditionally inherits. Byung-chul passed over the eldest two sons because he thought Lee Kun-hee had the strategic vision. Luna: And that decision caused years of family infighting. Lucas: Massive infighting. The eldest son, Lee Meng-hee, sued his father. The middle son, Lee Chang-hee, left to run a separate company. But Lee Byung-chul held firm, and in 1987, when he died of lung cancer, Lee Kun-hee took over. Luna: And he inherited a company that was already huge—but he thought it was complacent. Lucas: That is an understatement. Lee Kun-hee said Samsung was a 'second-rate' company. In 1993, he gathered 200 executives in Tokyo and gave what is now famous as the 'Second Foundation' speech. He told them, 'Change everything except your wife and children.' Then he literally burned 150,000 defective phones and 10,000 fax machines in front of employees to make the point. Luna: He wanted to instil a culture of quality the way Toyota did. Did it work? Lucas: Incredibly well. Within a decade, Samsung became the dominant player in memory chips, overtaking Japanese rivals like Toshiba. By 2000, it was the global leader in DRAM and NAND flash. But the transformation was brutal. He killed the car division—Samsung Motors—after it lost billions. He sold off dozens of unrelated businesses. Luna: And he centralized power in the family through a complex web of cross-shareholdings. Lucas: Right. So the Lee family owns only about 2 percent of Samsung Electronics directly. But they control it through a circular ownership loop: Samsung Life Insurance owns shares in Samsung Electronics. Samsung Electronics owns shares in Samsung Card. Samsung Card owns shares in Samsung Life Insurance. The Lee family sits at the top, controlling the key holding companies with tiny direct stakes. Luna: That structure also made it very hard for outside investors to challenge management. Lucas: It also made succession extremely tricky. Because when Lee Kun-hee wanted to pass control to his son, Lee Jae-yong, he had to transfer ownership of those cross-shareholdings. And Korea has among the highest inheritance tax rates in the world—up to 50 percent on the largest estates. Luna: So the family used stock swaps and charitable foundations to minimize the tax bill? Lucas: Exactly. In the 2010s, Lee Kun-hee gave shares in Samsung subsidiaries to his children through complex deals that were essentially tax-avoidance schemes. In 2016, prosecutors indicted Lee Jae-yong for bribery, embezzlement, and hiding assets—all related to the succession planning. He was sentenced to five years in prison, then released, then sentenced again. Luna: And despite the criminal record, he is still the chairman today. Lucas: He received a presidential pardon in 2021. President Moon Jae-in's government said it was necessary for the national economy. And honestly, that reveals something about Korean chaebols: the state sees them as too big to fail. Samsung alone accounts for about 20 percent of Korea's GDP. Luna: So the family's grip on power is partly political. The government needs Samsung to invest, to export, to create jobs. Lucas: Exactly. Lee Jae-yong is now in his mid-fifties, and he has two children—a daughter and a son. But the succession question is already looming. The inheritance tax for the next generation could be enormous. Lee Kun-hee's estate was valued at about $20 billion, and the family is still paying the tax in installments. Luna: If those conversations about the future of your own work have moved forward in any small way because of this show, that relationship is the only thing we care about here. We deliberately keep these episodes free of outside ads because it feels right for the conversation. If you want to support that choice, the link is buy me a coffee dot com slash fexingo. Lucas: And if you aren't in a position to do that, no pressure at all. Just being here and listening is enough. Now, back to the Lees. Luna: So what does the next generation face? Lee Jae-yong's children are still young—his son is in his early twenties. Will they follow the same path? Lucas: It is hard to say. The Korean public has become much more critical of chaebol power. In 2017, massive street protests forced the impeachment of President Park Geun-hye, partly because of the Samsung scandal. There is real pressure to reform the governance of these conglomerates. Luna: But reform is slow. The cross-shareholding structure still exists. And the family still controls the key appointments. Lucas: Right. And Samsung is not the only chaebol that works this way. Hyundai, LG, SK—they all have similar structures. But Samsung is the most extreme example because of its sheer size. In 2023, Samsung Electronics alone had revenue of $245 billion. That is bigger than the GDP of many countries. Luna: And its market cap is about $400 billion. So the family controls a $400 billion company with a 2 percent stake. Lucas: That is the power of the pyramid structure. And it is not just Korea. In Europe, families like the Wallenbergs use similar mechanisms. But in Korea, the tax rates make it especially difficult to pass control without either paying a fortune or bending the rules. Luna: One thing I find interesting: Lee Byung-chul, the founder, deliberately kept the company private for decades. He did not list Samsung Electronics on the stock exchange until 1975, and even then he retained majority control through affiliates. Lucas: He was a control freak in the best sense. He famously said, 'If you are the head of a family, you do not sell the family silver.' And that philosophy persisted. Even today, Samsung Electronics has no single outside shareholder with more than 5 percent. The largest are the National Pension Service and a few foreign funds, but they never coordinate. Luna: So the family faces no real activist pressure, unlike what happened at Yahoo or Procter & Gamble. Lucas: Not yet. But there are signs of change. In 2018, the National Pension Service voted against the reappointment of some Samsung directors. And a few small activist funds have started buying shares. But the family still controls the board through the cross-shareholdings. It would take a massive coordinated effort to dislodge them. Luna: What about the third generation? Lee Jae-yong has been chairman since 2020. Will he hand over to his son, or will there be another contest? Lucas: That is the billion-dollar question. Lee Jae-yong's son, Lee Ji-ho, is currently a student. He has no public role yet. But in 2022, Lee Jae-yong appointed a new chief financial officer who is known to be close to the family. So the groundwork is being laid. Luna: But the legal environment is much tougher now. The 2017 scandal led to tighter regulations on insider trading and self-dealing. Lucas: True. The Financial Services Commission in Korea has also pushed for higher disclosure standards. But the family has always adapted. They used to rely on a complex web of loans and guarantees between affiliates. After those were restricted, they shifted to stock swaps and foundations. Luna: So they evolve as the rules change. It is like an arms race between regulators and the family. Lucas: Exactly. And so far, the family is winning. Lee Kun-hee died in 2020, and his estate was valued at over $20 billion. The tax bill was about $10 billion—the largest inheritance tax payment in history. But the family paid it over five years, using dividends from Samsung Electronics. They did not have to sell a single share. Luna: Because the dividends from Samsung Electronics are enormous. In 2024, Samsung paid over $10 billion in dividends. So the family's 2 percent stake still yields $200 million a year. Lucas: And that is just from one listed subsidiary. They also control Samsung Life Insurance, Samsung C&T, and dozens of other companies. The total wealth of the Lee family is estimated at $20 to $30 billion, placing them among the top 50 families in the world. Luna: But they are also one of the most secretive. The family rarely gives interviews. Their personal lives are almost completely hidden from the public. Lucas: That is part of the strategy. By staying out of the spotlight, they avoid scrutiny. Lee Kun-hee was famously reclusive. He only appeared at company events a few times a year. His son, Lee Jae-yong, has been more visible since taking over, but he still avoids the press. Luna: It is the opposite of the American CEO model, where the founder is the face of the brand. Lucas: Exactly. You do not see Lee Jae-yong doing a keynote like Steve Jobs. The family operates through professional managers. The CEO of Samsung Electronics is a non-family executive. The family sets the strategy from behind the scenes. Luna: So the question is: how long can this model survive? The Korean public is more aware of the inequality. There is a growing demand for chaebol reform. Lucas: But the economic reality is that Samsung is too important. It employs over 300,000 people globally. It is the backbone of the Korean economy. Any government that tries to break up the family's control risks a massive economic disruption. Luna: So maybe the lesson is that the Lee family will stay in control until they decide otherwise. Lucas: Or until a crisis forces their hand. The 2017 scandal was a near miss. If another scandal hits while the public mood is hostile, the government might act. But for now, the Lees are secure. They have survived wars, dictatorships, financial crises, and criminal convictions. That is the definition of a resilient family business. Luna: And the next chapter is yet to be written. Will the fourth generation hold on, or will Samsung eventually become like General Electric—a conglomerate that gets broken up? Lucas: That is the story we will be watching. For now, the Lee family remains the most powerful business family in Korea, and Samsung remains the most valuable company in the country—controlled by a 2 percent stake. It is a remarkable feat of financial engineering and political maneuvering. Luna: And a reminder that family business is not just about making products. It is about power. Lucas: Exactly. And on that note, I think we have covered enough for today. Next time, we will look at another family that built an empire against the odds.