There’s a saying in Korean,There are 3 things that all Korean have to go through in life tax, death and Samsung
The influence of the Samsung Group is so vast that it comprises 22% of the nation’s GDP, positioning the conglomerate as an economic powerhouse equivalent to a fifth of the entire country. To put this into perspective, if Samsung were in the United States, its economic heft would be comparable to combining the total value of major corporations like Apple, Microsoft, Meta, Tesla, and Google, and then multiplying it by five. That’s the scale we are talking about.
The chaebol, meaning monopolies run by a single family, with Samsung at the helm, holds substantial sway over South Korean politics, to the extent that it can influence government elections and, to some degree, evade judicial repercussions. This power dynamic places them in a position where they are seemingly above both the government and the law. It’s a fascinating and complex scenario where a colossal country’s fate is intricately tied to a single corporation, which in turn, is controlled by a single family.
Today, our journey takes us through the story of this influential family and the empire they built. The founder of Samsung, Lee Byung-chul, is revered as a God of Entrepreneurship in Korea. Born in 1910, he came of age during Japan’s colonial rule of Korea, a tumultuous period that lasted until Japan’s defeat in World War II in 1945. These unstable times, filled with supply and demand imbalances, created plenty opportunities for a business prodigy like Lee Byung-chul.
However, Samsung wasn’t his first venture. His entrepreneurial journey was akin to leveling up in a game, starting various businesses, each more successful than the last. At the age of 26, he established the city’s largest rice mill, acquired a Japanese logistics company, and maximized his leverage by purchasing land to rent out, effectively becoming a landlord. Within just two years, he had built a formidable business empire.
But then, Japan, facing resistance in China and in need of capital, issued an order halting all banking operations in Korea, shattering Lee Byung-chul’s financial foundations and leading to bankruptcy. Undeterred, he soon found a new venture, exporting Korean specialties to Northeast China and establishing Samsung Trading Co. However, this incarnation of Samsung is vastly different from the conglomerate we know today, sharing only the name.
Once again, Lee Byung-chul’s business acumen proved sharp; the trading business flourished. He then acquired a brewery from the Japanese, turning it into Daegu’s number one brewery and solidifying his reputation as a prominent businessman – all within a span of two years. However, his success was short-lived. In 1941, after Japan’s attack on Pearl Harbor, strict controls were placed on goods, including aquatic products and breweries, leading to yet another business failure.
By this time, Lee Byung-chul had weathered two major upheavals and was only 31 years old. The landscape changed once again in 1945 with Japan’s unconditional surrender and withdrawal from Korea. In 1948, South Korea found its first president in Syngman Rhee, a family friend of Lee Byung-chul. Sensing an opportunity, he established Samsung Corporation, diving back into the trading business.
Leveraging his connection with President Rhee, Samsung quickly acquired valuable assets left by the Japanese at bargain prices. Within a year, the company soared into South Korea’s top 10 enterprises. Yet, stability remained elusive; the outbreak of the Korean War in 1950 led to Samsung’s bankruptcy once again, marking the third major setback for Lee Byung-chul.
The post-war era left South Korea in a weakened state, and at 40, Lee Byung-chul had faced more than his fair share of challenges. However, his entrepreneurial spirit was unbroken, and his ties to the president remained strong. By December 1950, he was back in business, establishing Samsung C&T Corp, the precursor to today’s Samsung Group.
Over the next few years, Samsung built the largest sugar and textile factories in South Korea, acquired numerous companies, invested in banks, and solidified its position as a leading chaebol with diverse business interests spanning production, logistics, export, and finance. By the late 1950s, unofficial reports from Korean media hailed Lee Byung-chul as the wealthiest man in the country.
However, this golden era was short-lived. Samsung’s dependency on the Rhee government proved to be its Achilles’ heel. In 1960, Syngman Rhee stepped down, and by 1961, General Park Chung-hee initiated a 27-year-long military regime. The chaebols associated with the Rhee regime faced severe repercussions.
Sensing the changing tides, Lee Byung-chul fled to Japan. Although he couldn’t be arrested there, he was labeled as a corrupt fugitive. In an attempt to salvage the situation, he penned a heartfelt letter to Park Chung-hee, proposing collaboration for the economic betterment of South Korea, and expressing his willingness to contribute his wealth for the nation’s prosperity.
Surprisingly, Park Chung-hee was swayed. Despite his authoritarian rule, he realized that nurturing compliant and competent chaebols could expedite South Korea’s economic development. He offered the chaebols a lifeline: continue to thrive with government support, but under strict compliance to his regime. The government took control of the banks, tightening its grip on the money flow, and marking the beginning of a new era for Samsung and other chaebols.
Supported by preferential policies and loans, Samsung and its fellow chaebols played a crucial role in realizing Park Chung-hee’s five-year economic plans, ushering in a golden age of prosperity and solidifying the chaebol era’s foundation. During this period of relative stability, Samsung expanded its business empire exponentially.
As the 1960s drew to a close, Lee Byung-chul, now approaching 60, faced a critical decision: choosing a successor. This decision would set the stage for the next chapter in Samsung’s saga, a dramatic battle for legitimacy and control.
In 1964, South Korea found itself in dire need of a robust fertilizer factory, and this crucial responsibility was entrusted to Samsung by Park Chung-hee. This undertaking became the central arena for a battle over legitimacy, reaching its climax in September 1966. Just as the fertilizer plant had been completed, its imported raw materials stored in the warehouse were seized by the Busan Customs, revealing the presence of unauthorized materials. Consequently, Samsung was slapped with a hefty fine of 23 million won.
At this point, one might have assumed the matter would fade away, yet, surprisingly, an individual approached the Blue House, reporting to the South Korean government that Samsung was covertly smuggling saccharin. This raised the stakes significantly, as smuggling saccharin was viewed as a more serious offense. Some media outlets speculated that the whistleblower was none other than Lee Maeng-hee, the eldest son of Samsung, who was believed to be plotting to supplant his father. In keeping with South Korean tradition, family businesses are typically passed down to the male heirs, leaving Lee Byung-chul with no choice but to select an heir from among his sons. He was a father to ten children, comprising four sons and six daughters, with the first three sons being considered the most likely successors.
Lee Maeng-hee, the eldest, was followed by Lee Chang-hee, and then Lee Kun-hee. The eldest and second sons were close in age, with a mere two-year difference, while the third son was a full decade younger than his older siblings. As such, the succession battle within Samsung primarily revolved around the first and second sons. However, Samsung’s involvement in smuggling was an undeniable fact, believed by some to be a mutual agreement between Park Chung-hee and Lee Byung-chul. Nevertheless, when the scandal broke, someone had to be held accountable.
Seizing this opportunity to prove his mettle to his father, Lee Chang-hee stepped forward, taking responsibility for the smuggling incident, which resulted in a five-year prison sentence, though he was released after just six months. As a consequence of the smuggling case, Lee Byung-chul was compelled to relinquish 51% of the company’s shares to the state and hand over Daegu University to the government, spending money to avert a disaster. Under immense public pressure, he resigned as Samsung’s chairman, passing the torch to his eldest son, Lee Maeng-hee.
Despite the ensuing drama, the transition of power to the next generation appeared to be smooth. However, Lee Maeng-hee might not have been the right fit for the position. To address the crisis of trust Samsung faced in society, he initiated extensive reforms that impacted many senior leaders. Unfortunately, his lack of authority resulted in managerial chaos, a lack of leadership, and plummeting morale, causing the company’s performance to decline rapidly. This forced Lee Byung-chul out of retirement merely six months later, resulting in Lee Maeng-hee’s resignation.
Although Lee Maeng-hee was seemingly unqualified, and Lee Chang-hee, having served time in prison for the smuggling case, appeared to be the traditional heir to Samsung, their father was not confident in Lee Chang-hee’s ability to lead such a vast enterprise. Consequently, he began grooming the third son, Lee Kun-hee, for leadership, often taking him along to important meetings and appointments. Upon his release from prison, Lee Chang-hee was furious, feeling overshadowed by his younger brother. In a dramatic turn of events, he amassed a trove of information about his father’s illegal activities and presented it to Park Chung-hee at the Blue House, accusing his father of secretly transferring assets overseas. However, Park Chung-hee was already aware of these activities, and Lee Byung-chul was given only a minor punishment.
This series of events left Lee Byung-chul utterly disillusioned with his second son, whom he subsequently exiled overseas, declaring that Lee Chang-hee was not to return to South Korea as long as he was alive. Suspecting that his eldest son, Lee Maeng-hee, may have had a hand in instigating his younger brother, Lee Byung-chul had Lee Maeng-hee committed to a mental hospital. After a tumultuous period, Lee Maeng-hee managed to flee South Korea. With the first and second sons out of the picture, the leadership of Samsung Group firmly landed in the hands of the third son, Lee Kun-hee, making him the ultimate victor in this family saga.
Despite his secured position, Lee Kun-hee’s succession was not without challenges. Lee Byung-chul continued to wield influence over Samsung for nearly two more decades, steering the company into various industries such as insurance, department stores, real estate, and paper manufacturing, establishing dominance in each sector. The electronics industry, in particular, flourished under his guidance, reaching a pinnacle in 1978 when it topped global sales and pioneered the development of South Korea’s first color TV sets.
Lee Kun-hee, not to be outdone, set his sights on the semiconductor industry in 1974, a field known for its high barriers to entry and technological sophistication. Despite skepticism from external parties and even Lee Byung-chul himself, Lee Kun-hee invested 400 million won of his own money to acquire Korea Semiconductor, renaming it Samsung Semiconductor. This strategic move proved to be a masterstroke as the popularity of personal computers surged worldwide, driving up the demand for semiconductors. Lee Kun-hee’s foresight and innovative thinking became apparent.
Five years later, recognizing the burgeoning potential of the semiconductor industry, Lee Byung-chul designated it a core business of Samsung, culminating in the establishment of a world-class semiconductor factory. When Lee Byung-chul passed away in 1986, he was able to confidently pass the reins of Samsung to his son, Lee Kun-hee, assured of his capabilities and vision.
Reflecting on Lee Byung-chul’s life, it was nothing short of a roller-coaster ride, marked by entrepreneurial brilliance and family drama, making him a legendary figure in the business world. Though he is no longer with us, his legacy lives on through Samsung, which, under Lee Kun-hee’s leadership, solidified its position as South Korea’s leading chaebol and a global powerhouse.
As Samsung entered a new era, its business model evolved from expansion and conquest to consolidation and defense. Lee Kun-hee proved to be an exceptional leader, known for his relentless pursuit of perfection and his ability to navigate the complex interplay between business and government. He introduced the concept of “Second Entrepreneurship,” emphasizing the importance of product quality and excellence in every endeavor, whether it was in mobile phones, semiconductors, or other fields.
However, it wasn’t just business acumen that set Lee Kun-hee apart; his ability to exert influence over the government played a critical role in Samsung’s growth and success. This was especially evident during the transition from military rule to democratic elections in 1987. While Samsung had to toe the line under the likes of Park Chung-hee and Chun Doo-hwan, the advent of democracy opened up new opportunities for manipulation and influence.
Lee Kun-hee skillfully navigated these political waters, using a combination of coercion and inducement to sway presidential elections, shape policies, and influence economic directions. His power even extended to major
Next. we will delve deeper into the intricate web of the Samsung empire, focusing on the pressing question: Can Lee Kun-hee ensure a seamless transition of Samsung’s leadership to Lee Jae-yong?
Under Lee Kun-hee’s strategic mentorship, Lee Jae-yong has been meticulously groomed for leadership, presenting no apparent issues on the business front. However, the complexities arise when we examine the distribution of equity within the conglomerate.
Consider this: Samsung is often referred to as a family business, yet the Lee family does not have full ownership. Ponder the market value of Samsung Electronics, standing at over $300 billion, while the entire Samsung group is valued between $500 to $600 billion. In contrast, Lee Jae-yong’s net worth is shy of $10 billion, constituting less than 2% of the group’s total value—even after inheriting a substantial fortune from his father. Previously, his share was a mere 0.6%. How, then, does he wield control over such an expansive empire with just a 1.6% stake?
Let’s unravel this conundrum by examining Samsung’s shareholding structure, shedding light on the convictions of both Lee Jae-yong and the former President of South Korea.
Ordinarily, to command control over a company, one would need to acquire 51% of its equity. Take, for example, the hypothetical D&D Retail Shop, valued at 10 billion. A direct investment of 5.1 billion would secure a controlling interest. However, the reality is, you don’t need to invest that much to gain control.
Let’s delve into a layered example: D&D Shop has a primary shareholder, Disrupt Holdings, with a 51% stake. Disrupt Holdings, worth 6 billion, is majority-owned by Disappear Holdings, valued at 4 billion. This chain continues with Disappear Holdings being majority-owned by Lin Wawa, and then Lin Wawa by Lin Hey, with Lin Chacha at the bottom of this hierarchical structure.
By controlling Lin Chacha, valued at just 800 million, with a mere investment of around 400 million, you effectively command the entire chain of businesses up to Lin Milk Tea Shop, worth 10 billion. This structure enables control over a wide array of ventures with a minimal investment. And remember, you don’t need to own more than 51% of the shares yourself; ensuring that your allies collectively hold a majority suffices.
This intricately layered control, while an extreme example, illustrates how the Lee family has managed to maintain its grip on the Samsung empire. The 2014 equity structure chart of Samsung, even after considerable simplification, reflects this complexity. Remember, Samsung comprises over 80 subsidiaries.
This strategy works seamlessly until a major shift occurs within the core framework—such as the head of the company passing away. The sudden health crisis of Lee Kun-hee in 2014 sent shockwaves through the Lee family, highlighting the precariousness of their situation. A sudden demise would have complicated matters immensely due to South Korea’s hefty inheritance tax rates, which can soar up to 60% for some corporations. This not only represents a colossal financial loss but also risks the potential disintegration of their meticulously crafted control structure, potentially costing the Lee family their grip on the Samsung empire.
Despite Lee Jae-yong’s public commitment to fulfilling his tax obligations, it is imperative that he strategically prepares to mitigate the impact of these exorbitant inheritance taxes and ensures a smooth transition of power.
Now, let’s scrutinize the convoluted shareholding structure of Samsung. By focusing on key entities—Cheil Industries, Samsung C&T, Samsung Insurance, and Samsung Electronics—we can distill the essence of their control dynamics.
At the core of their empire stands Samsung Electronics, responsible for approximately half of the group’s total revenue. The Lee family’s control is channeled through a complex web of holdings in Cheil Industries, Samsung C&T, and Samsung Insurance.
The plot thickens with Lee Jae-yong’s strategic move to solidify his control by orchestrating the undervalued acquisition of Samsung C&T by Cheil Industries, which he dominantly influences. This maneuver, while clever, did not go unnoticed or unchallenged, particularly by Samsung C&T’s shareholders and the notable hedge fund, Eliot.
Faced with resistance, Lee Jae-yong had to secure the approval of South Korea’s National Pension Service, a major shareholder in Samsung C&T. This required navigating the upper echelons of South Korean politics, ultimately leading him to Choi Soon-sil, a close confidante of then-President Park Geun-hye.
The subsequent donation of $36 million to Choi Soon-sil’s dubious foundation paved the way for the acquisition’s approval, marking a controversial milestone in Samsung’s history.
The fallout from this scandal was seismic. Park Geun-hye faced impeachment, becoming the first South Korean president to be ousted from office and subsequently imprisoned. Choi Soon-sil and Lee Jae-yong also faced legal repercussions. However, by 2022, pardons had been issued, restoring freedom to the involved parties.
Despite the tumultuous journey and legal battles, the Lee family’s reign over the Samsung Group remains unshaken, illustrating the entwined relationship between corporate power and political influence in South Korea.