Samsung case shows ‘chaebol’ flaw
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. –
Customers return their Samsung Note 7 phones at a dealership in Seoul.