Latest / Family Business Stories with Fexingo: Succession, Legacy, and Multi-Generational Companies / The Samsung Succession That Shook South Korea
Transcript
- Lucas: Samsung is often called the Republic of Samsung—it alone accounts for about twenty percent of South Korea's export economy. But for all its scale, for decades the company's fate has hinged on a single family: the Lees. Luna: And that family has had its share of drama. I mean, the founder's son was convicted of bribery, the president of the country was impeached over it—this is not your typical succession story. Lucas: Exactly. But to understand the crisis, you have to go back to 2014. That's when second-generation chairman Lee Kun-hee suffered a heart attack. He had transformed Samsung from a low-cost TV maker into a global tech giant, but he left a complex web of cross-shareholdings and no real plan for handing over power. Luna: So his son Jay Y. Lee was suddenly thrust into the spotlight—but without the ownership structure to back him up. Lucas: Right. Jay owned only a tiny fraction of Samsung Electronics directly. The real control was through a circular ownership structure: Samsung Life Insurance owned shares in Samsung Electronics, Samsung Electronics owned shares in Samsung C&T, and so on. It was a daisy chain held together by the family's personal stakes in a few key entities. Luna: And to tighten his grip, Jay needed to consolidate those stakes. That's where the infamous merger comes in. Lucas: In 2015, Samsung proposed a merger between two affiliates: Samsung C&T, which was a construction and trading company, and Cheil Industries, a fashion and theme-park firm. On paper, it was a simple integration. In reality, it was a way for Jay to increase his control while paying less inheritance tax. The merger was opposed by a US hedge fund, Elliott Management, which argued the terms unfairly benefited the family. Luna: And yet the merger went through—barely. It passed with just over sixty-nine percent of shareholder votes. The Korean National Pension Service, a large shareholder, voted in favor, which raised eyebrows. Lucas: That decision is what ultimately led to the corruption scandal. Prosecutors alleged that the pension service's vote was influenced by the Park Geun-hye administration, and that Samsung had bribed the president's confidante to secure government support for the merger. Jay was indicted for bribery in 2017. Luna: And he ended up spending about a year in prison before being released on appeal. Then the Supreme Court sent the case back, and in 2021 he was sentenced again, but with time served he remained free. It was a legal roller coaster. Lucas: For listeners, if this kind of deep dive into a family business's inner workings is valuable—if it helps you think about governance or succession in your own context—that's exactly the kind of thing that keeps us going. And the way we keep this show ad-free is through listener support at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small gesture that goes a long way to keep these stories coming. And we really appreciate it. Lucas: So back to Samsung: the merger went through, Jay eventually consolidated his power, but at a huge cost. His father died in 2020, and Jay formally took over as chairman in 2022. But the legal battles aren't entirely over, and the public trust has been damaged. Luna: And the bigger question is: can the fourth generation hold onto the empire? Jay's children are still young, and the chaebol model is under pressure from activist investors and government reform. Lucas: The Lee family's approach to succession has always been about control rather than ownership. They use a system of circular cross-shareholdings where a small personal stake in one company gives them influence over the entire group. But that system is becoming harder to maintain as transparency demands increase. Luna: There's also the inheritance tax issue. South Korea has one of the highest inheritance tax rates in the world—up to fifty percent. When Lee Kun-hee died, his family faced an estimated tax bill of over ten billion dollars. They had to borrow against their shares to pay it. Lucas: Which forced them to sell some assets and donate a huge collection of art to the state. That's another way the family business intersects with public policy. The Lee family's story isn't just about business—it's about power, politics, and the tension between private wealth and public good. Luna: And yet, despite all the scandals, Samsung remains the backbone of the Korean economy. The company's semiconductor division alone generates more revenue than most countries' GDP. Lucas: That's the paradox of the chaebol: they are too big to fail, but their governance can be fragile. The Lee family has managed to survive—so far. But the next generation will face even more scrutiny and competition from China and the US. Luna: So what's the lesson for other family businesses? Maybe it's that success in the long run requires more than just financial engineering. It requires a clear, legitimate succession plan that stakeholders trust. Lucas: Absolutely. The Samsung saga shows that when a family tries to bend the rules to preserve control, it can backfire spectacularly. A better path might be the one used by companies like Hermès: a holding structure that locks in control without the need for shadowy deals. Luna: But Hermès had a united family. The Lees have had internal tensions too, though they keep them private. Lucas: Indeed. In fact, one of the least told stories is that Lee Kun-hee's older brother and sister once sued him over the inheritance. The family has not always been harmonious. Luna: Right, there was a court battle back in the nineties over shares from their father, the founder. So the succession crisis we saw in 2015 was really a continuation of a pattern: each generation fights to keep the empire. Lucas: That pattern is common in many family businesses: the founder builds it, the second generation consolidates it, and the third generation often destroys it—unless structures are in place. Samsung's third generation is still in charge, so the jury is out. Luna: I think the key takeaway is that succession isn't just about picking a successor. It's about creating an ownership architecture that aligns incentives and separates family management from family ownership when necessary. Lucas: Well put. And that's exactly why we cover these stories—to learn from the successes and the failures. The Lee family's journey is far from over, but the chapters so far are a masterclass in what happens when power and business intertwine. Luna: Next time, we'll look at a family that went the opposite direction: one that voluntarily gave up control to professional managers and thrived. Lucas: Interesting. Stay tuned, and as always, thanks for listening.