Sam­sung case shows ‘chae­bol’ flaw

The Myanmar Times - - International Business -

SAM­SUNG’S cor­po­rate car-crash over its ex­plod­ing Note 7 smart­phones has shone a spot­light on South Korea’s “chae­bol” busi­ness cul­ture – the fam­ily-run em­pires whose rigid cor­po­rate struc­ture and opaque gov­er­nance style aren’t al­ways best suited to a cri­sis.

Gi­ant con­glom­er­ates like Sam­sung and Hyundai were widely cred­ited with driv­ing the stel­lar growth that trans­formed South Korea from a war-rav­aged back­wa­ter to Asia’s fourth-largest econ­omy in a mat­ter of decades.

Their busi­ness style was a top­down cor­po­rate cul­ture where or­ders from the found­ing fam­ily and se­nior man­agers were car­ried out with­out ques­tion.

Sam­sung has long been seen as a model of prag­matic ef­fi­ciency, with a chair and a hand­ful of elite man­agers dic­tat­ing an over­all busi­ness plan for all di­vi­sions to fol­low metic­u­lously.

Un­der the now-ail­ing chair­man and fam­ily pa­tri­arch Lee Kun-hee the strat­egy proved ex­tremely suc­cess­ful over the past 15-20 years, turn­ing the once-ob­scure elec­tron­ics maker into a global pow­er­house.

But as the firm grew in size, and its busi­ness deal­ings be­came more com­plex and glob­alised, the highly cen­tralised de­ci­sion-mak­ing process has be­come, some an­a­lysts suggest, a li­a­bil­ity as well as an as­set.

Kim Sang-jo, head of the Seoul­based cor­po­rate gov­er­nance mon­i­tor­ing group Sol­i­dar­ity for Eco­nomic Re­form, said a co­terie of top man­agers in the com­pany’s “fu­ture strat­egy of­fice” wield nearly un­chal­lenged au­thor­ity over the group’s di­rec­tion.

“What­ever de­ci­sion the of­fice makes, en­gi­neers and work­inglevel man­agers should fol­low silently, al­though they might think it’s not hu­manly pos­si­ble or ut­terly un­rea­son­able,” Mr Kim said.

Chae­bols like Sam­sung are not used to deal­ing with pub­lic scru­tiny, or in­deed with share­hold­ers – as Sam­sung showed dur­ing a bit­ter dis­pute with the US hedge fund El­liott Man­age­ment which tried to pre­vent a merger of two Sam­sung af­fil­i­ates.

This is partly due to their dom­i­nant po­si­tion in the South Korean econ­omy. Sam­sung alone ac­counts for around 17 per­cent of the coun­try’s GDP –-which tends to in­tim­i­date do­mes­tic reg­u­la­tors. –

Photo: AFP

Cus­tomers re­turn their Sam­sung Note 7 phones at a deal­er­ship in Seoul.

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