Mentor of Samsung scion seen stepping up after Lee arrest

Employees walk past a logo of Samsung Group at its headquarters in Seoul, South Korea. Kwon Hyun-goo/Newsis via AP

Employees walk past a logo of Samsung Group at its headquarters in Seoul, South Korea. Kwon Hyun-goo/Newsis via AP

Published Feb 17, 2017

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Seoul - The arrest of Samsung Group scion

Jay Y. Lee on bribery charges could hamper decisions on

strategic investments and acquisitions at the sprawling

conglomerate, insiders and former executives say, even with

strong leadership at its many businesses.

Although business at flagship Samsung Electronics

is humming along, big calls will need to be made and

the man most likely to be called upon to make them is Choi

Gee-sung, the top lieutenant at Samsung Group and a mentor to

Lee.

"Choi is very experienced and has done a good job. He is the

one best placed to manage group-level affairs in Lee's absence,"

said one Samsung insider.

While Samsung Electronics is still smarting from the debacle

of its exploding Galaxy Note 7 smartphone batteries, its

semiconductor business is in rude health. Its share price has

risen about 60 percent in the past year.

But the wide-ranging investigation, part of a corruption

scandal that led parliament to impeach South Korean President

Park Geun-hye, has been a major distraction for the country's

largest conglomerate, or chaebol.

"Everything has virtually stopped," said a second executive

at Samsung Group's powerful strategy office that Choi heads.

"We're mainly focusing on the prosecutor's investigation (into

Lee and Samsung) ... We'll be running an emergency plan and

everything will be under Choi's control for now."

But some others say even Choi's role could be limited and

Samsung may have to rely more on each affiliate's top

management, with Choi also under investigation by special

prosecutors.

"Since we've decided to dismantle group strategy office,

Choi's role is likely to gradually decrease, although we can't

say for how much and when," another Samsung executive said.

A fourth group insider said: "We have a system in place with

professional management teams, so in terms of the day-to-day

operations things should be fine."

None of the Samsung individuals wanted to be identified due

to the sensitivity of the matter.

Read also:  Samsung boss arrested

"It's not like Samsung businesses will grind to a halt.

There are many smart people at the company," said Kim Yong-serk,

a former Samsung Electronics executive who is now a professor at

Sungkyunkwan University.

But the arrest of Lee, 48, will have an impact on

longer-term investment decisions at the conglomerate.

"Samsung presidents are evaluated on an annual basis, so

they can't make bold bets about the future. They need a chairman

for that," Kim said.

Samsung declined to comment on its management plans or

Choi's role.

BEATING APPLE

When Samsung Electronics trailed Nokia in mobile phones -

just five years ago - Choi, then CEO, set his sights on a

different rival.

"Competition is coming from elsewhere. There's a company

more profitable than us and we should change our target," he

told Reuters in January 2012, referring to Apple Inc.

That year, Samsung ended Nokia's 14-year domination of the

mobile market, ultimately also overtaking Apple as the world's

biggest smartphone maker.

In a Samsung career spanning more than three decades, Choi

worked in all the main businesses, from semiconductors and home

appliances to televisions and telecoms, before taking over as

chief executive.

As head of strategy, 66-year-old Choi has acted as Jay Y.

Lee's mentor and been closely involved in preparing the path for

him to take over from his father, who was incapacitated by a

heart attack in 2014.

Under Choi's guidance, Lee has moved closer to succeeding

his father in a well-choreographed long-term plan, including a

restructuring of the conglomerate to cement the Lee family's

control.

However, that plan included a controversial $8 billion

merger of two Samsung units that has been central to

prosecutors' case against the group, and Lee.

Prosecutors accuse Samsung of paying bribes totalling 43

billion won ($37.74 million) to organizations linked to

President Park Geun-hye's friend, Choi Soon-sil, to secure

government backing for the merger.

Choi Gee-sung and his deputy Chang Choong-ki were quizzed by

prosecutors over their role in the deal.

Bigger role

Lee's absence, if prolonged, could also see a bigger role

for Kwon Oh-hyun, Samsung Electronics' vice chairman and current

CEO.

Known as "Mr Chip", Kwon has overseen the growth of

Samsung's component business, which now generates much of the

firm's profits.

"Kwon is a very practical manager. Like many Samsung

managers in the component business, he doesn't feel comfortable

(in the limelight)," said an executive who worked with him.

Kwon, who studied electrical engineering at Seoul National

University and at Stanford, cemented Samsung's position in

memory chips and expanded the contract chip manufacturing

business, producing chips that power the Apple iPhone.

But, for all the experience and qualities these senior

managers bring, Lee's absence will be felt.

Lee had been instrumental in seeking to drive growth through

new businesses, including signing off on South Korea's biggest

outbound deal: an $8 billion acquisition of US auto

electronics maker Harman International Industries.

"The biggest problem is that Lee is the one who sets the

direction of Samsung as a whole," the fourth group insider said.

"He doesn't get into every business decision, but he's the

one who has to sign off on major investments or acquisitions ...

That's why he can't easily be replaced." 

REUTERS

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