But few Korea watchers expect his resignation to have much impact on the businesses of the 59 companies in the group, which include Samsung Electronics, a leading manufacturer of chips, flat-screen TVs and mobile phones, and credit card operator Samsung Card. One reason, they say, is that 66-year-old Lee who has been at the helm for the past 20 years is not actively involved with the day-to-day operations of these companies. He will also retain the familyÆs ownership of the group and can be expected to continue to play a part in most major decisions.
YesterdayÆs announcement of a 10-point reform plan by Samsung Group also didnÆt make any mention of succession and as a result is unlikely to silence the critics who would like to see the management of the group handed over to professionals rather than passed on to LeeÆs son û which is expected to happen sometime in the future.
ôIt will be business as usual,ö says one analyst, who covers Samsung Electronics.
Investors appeared to agree as there was little movement in the share prices of key group companies following yesterdayÆs announcement. Samsung Electronic gained 0.15% and has now added 3.7% since the chairman was indicted last Thursday. Samsung Card was up 1.3% and Samsung Heavy Industries fell 0.9%. However, Samsung Securities, which will lose its CEO in the shake-up, fell 4.9%.
However, the announcement does suggest that the group is responding at least in part to the calls for improved corporate governance. Lee will relinquish not only his chairmanship of the group, but will also resign from his positions as chairman of Samsung Electronics and CEO and president of the Samsung Foundation of Culture.
He will be followed out the door by vice-chairman Lee Hak Soo, responsible for running the groupÆs day-to-day business and widely regarded as chairman LeeÆs right-hand man, as well as president Kim In Joo, who will both step down by the end of June. The chairmanÆs 40-year-old son, Lee Jae Yong, who is a senior vice-president of Samsung Electronics, will resign from his position as chief customer officer of the group and will be reassigned overseas to develop the groupÆs non-Korean businesses.
Further, Samsung said it will strengthen the transparency at Samsung Life Insurance, Samsung Securities and Samsung Fire and Marine Insurance, by introducing ôimproved systemsö to enhance fair and ethical management. The CEOs of both Samsung Fire and Marine Insurance and Samsung Securities said they would take responsibility for causing concern and will tender their resignations.
The group will also dismantle its Strategic Planning Office, which should give the individual companies within the group more freedom to run their own businesses. At its extension, this could also open the door for a restructuring of Samsung Group into a proper holding company or for a wind-up of the numerous cross-shareholdings between affiliates that currently allows the family to retain operational control of various group companies even though it typically doesnÆt have a majority economic stake.
In the statement, Samsung noted that it would be ôimpractical to consider establishing a holding company immediatelyö but added that it ôwill continue to review all necessary measuresö. Samsung Card will also gradually dispose of its shares in unlisted amusement park operator Samsung Everland, which owns an influential stake in Samsung Life Insurance, the nation's biggest life insurer. Samsung Life, in turn, is the single biggest shareholder of Samsung Electronics. However, envisioned to take place over "the next four to five years", the sell-down will be much slower than some company watchers had hoped for.
The planning office was responsible for strategic business initiatives, large-scale investments and restructuring efforts in the wake of the Asian financial crisis in the late 1990s. According to the Samsung statement, it has been instrumental in strengthening the competitiveness of the affiliates within the group.
ôHopefully [the resignations and reforms] will set a benchmark for other chaebols in Korea and at least it should ring a bell with other families that inheritance planning has to be legitimate,ö says one banker, referring to the issue that lies at the heart of LeeÆs indictment û the transfer of group assets to his son at fire-sale prices as a way of passing corporate control to the next generation.
The chairman was charged with evading taxes of W113 billion ($114 million) after a more than three-month investigation by a special prosecutor, but he was cleared of the more serious allegations of bribery and of setting up a slush fund and was not detained. Nine other company executives, including vice-chairman Lee, were indicted on similar charges.
Chairman Lee has neither admitted nor denied the allegations, but media representatives present at a Samsung press conference in Seoul yesterday reported that he apologised for causing concern with the investigation and said he would take full legal and moral responsibility.
The investigation was ordered by South Korea's National Assembly after a former Samsung legal counsel in November last year accused the chairman of accumulating a $200 million slush fund to induce public officials.
YesterdayÆs statement was short on details about the future plans for Samsung and didnÆt make any reference to a potential break-up of the group. The position of chairman for Samsung Group will be left vacant, but the chairman of Samsung Life Insurance, Lee Soo Bin, will serve as a representative for the group on external affairs.
It is a long-standing wish among Korean bureaucrats to see the countryÆs powerful family businesses, commonly referred to as chaebols, split up. Their ultimate aim is to have the family retain control of only one or two business lines to reduce their influence on both business and politics in Korea. This has already happened with other groups like Daewoo and Hyundai, but it has been more difficult to force change at Samsung, which was started by the current chairmanÆs father in 1938 and whose annual sales are equivalent to about 20% of KoreaÆs GDP.
However, analysts and bankers alike donÆt expect yesterdayÆs announcement will change the fact that the younger Lee will one day take control of the group from his father. Lee Jae YongÆs reassignment abroad is widely regarded as temporary and he is expected to return to the group headquarters after sharpening his managerial skills on the overseas businesses.