Recovering From Samsung Resignation

“When Samsung coughs, the economy gets a cold” is a popular saying in South Korea. Over a fifth of the country’s exports are produced by the company, which generates 18 percent of the country’s GDP. In total, the Samsung conglomerate has over 200,000 employees.

So, last week’s announcement by the chairman of the Samsung Group sent shockwaves through the country: "I have decided to resign as the chairman of Samsung. I have regrets but I think it is time for me to leave, taking all the mistakes of the past with me.”

Charged with corruption and tax evasion, Lee Kun-hee had been under immense pressure but nobody had really expected him to step down. South Korea is used to executives remaining in power despite corruption scandals and jail sentences.

Chaebol-dominated economy

Samsung is the largest of South Korea’s large, family-controlled conglomerates known as chaebol. Hyundai and LG are two more examples. In the 1960s, the chaebol forged strong links with the military government of the time, which wanted to industrialise the country as fast as possible.

Today, South Korea continues to be dominated by chaebol. Medium-sized companies have very little chance of making their mark. Generally, South Korean society is proud of the chaebol -- even foul-play is tolerated if there is economic success.

However, there are some vocal critics of the economy’s corrupt foundations. Experts such as Professor Park from Seoul University thinks these need to be addressed: "Customer capital controls Samsung Electronics along with Samsung Life, whose shares are owned by Everland. It would be illogical to think that Samsung has solved its problems with this one resignation. The structural problems need to be solved.”

Keeping it in the family

There is no doubt in South Korea that the Lee family -- which set up Samsung over 70 years ago -- will remain the majority shareholder in the group. Nor is there any doubt that the next generation of Lees will take over the reins once the current public uproar has subsided.

One of the main allegations against Samsung is that Lee Kung Hee used illegal means to help his son Lee Jae Yong take over management control of the group. He started grooming his son for the position over ten years ago. Lee Jae Yong also resigned from his position as the executive in charge of consumer relations at Samsung Electronics last week.

He will be back, says Professor Kim who teaches at Hansung University: "If the son manages to win back the trust of South Korean society and proves that he has management skills he will become the head of the Samsung Group after a certain amount of time."

Salvaging image and the economy

By resigning as chair, Lee has made significant efforts to salvage Samsung’s image. And observers say he can be relaxed about the legal proceedings.

In the past, South Korean judges have shown themselves to be pretty lenient towards white-collar criminals, citing their contributions to the economy and public sympathy as reasons for indulgence.

Moreover, the current political climate might well work in Samsung’s favour. The new president wants to put South Korea back on track in economic terms. He recently invited several leaders of industry, including Samsung representatives, to discuss the country’s future path. Samsung might have a cough but South Korea doesn’t want a cold.