December 3, 2010 / 5:21 AM / 9 years ago

Samsung promotes heir apparent, shares hit record

SEOUL (Reuters) - Samsung Electronics promoted its chairman’s son, Jay Y. Lee, as president in a move that tightens the founding family’s grip over the world’s biggest memory chipmaker as it battles slower growth.

Jay Y. Lee, son of Samsung Electronics chairman Lee Kun-hee and the company's chief operating office, is seen in Seoul in this December 1, 2010 file photo. REUTERS/Lee Jae-Won/Files

Shares in Asia’s most valuable company, with a market capitalization of $120 billion, ended up 4.1 percent at a record on hopes the change may spur growth at a firm struggling to stop Apple’s march in the smartphone market.

But Samsung Chairman Lee Kun-hee, the country’s richest man, may have made his biggest gamble yet by promoting his 42-year-old son, whom analysts say has yet to make his mark on the company.

“With this management reshuffle, and the promotion of the younger generation of the controlling family, some clarity has been given in that investors get a sense of where the group and affiliates are headed,” said Kang Sun-sik, senior fund manager at Woori Asset Management, which owns shares in Samsung Electronics.

Almost as reclusive as his father, the younger Lee has long been viewed as being groomed to head the Samsung Group, founded by his grandfather in the 1930s.

However, it won’t be an easy task for Jay Lee to match the performance of his father, who has helped Samsung overtake Hewlett-Packard as the world’s biggest technology firm by revenue and has reported record results each quarter this year, often beating even the most bullish street estimates.

Samsung Electronics is 50 percent owned by foreign investors.

The promotion of Jay Lee, the only son of chairman Lee, comes only a year after he was named executive vice president to take the newly created title of Chief Operating Officer in December last year.

“He is expected to continue to strengthen the competitiveness of Samsung’s strategic businesses and to lay the foundation for Samsung’s future new growth businesses,” Samsung said in a statement.

Prior to Lee’s promotion, his father, 68, has repeatedly said Samsung needs nimble management and young talents capable of dealing with fast changing markets and there would be a large-scale management reshuffle this year, signaling he would put a new face on the 41-year-old technology giant.

The family-run chaebol structure spearheaded South Korea’s rise to Asia’s fourth-largest economy from the rubble of a war in just over a generation but its debt-fueled expansion was widely blamed for pushing the country to the brink of national default during the Asian financial crisis in the late 1990s.

The model also came under attack for lacking transparency and creating slush funds, but its fast execution and bold investment plans enabled family-run businesses to stay ahead of the competition in the recent financial crisis.

“Today’s announcements are aimed at leading the way through the rapid changes of the 21st century... highlight the intention to increase the role of young and innovative executive leadership, while providing impetus to the new growth businesses,” Samsung said.

Lee, who has a bachelor’s degree in East Asian history from Seoul National University, joined Samsung in 1991 but spent most of his time studying for an MBA from Keio University in Japan and the doctoral program at Harvard Business school before becoming a senior manager a decade later in 2001.

The elder Lee returned as Samsung chairman in March, nearly two years after he stepped down following a legal scandal. He was granted a presidential pardon in late 2009 over a conviction for tax evasion.

Samsung is the latest company bringing in its founding family to the top management.

In September, LG Electronics Inc replaced its CEO with its founding family to help turn around its struggling mobile business. Toyota Motor named its founding family scion Akio Toyoda as president last year to lead it through the global crisis that slashed demand for cars.

Samsung also promoted Choi Gee-sung, chief executive of Samsung Electronics, as vice chairman, as South Korea’s biggest business conglomerate revived its central office last month to tighten its grip over some 60 business units.

Lee will continue to keep his chief operating officer title and Choi will also stay as CEO of Samsung Electronics. There are more than a dozen presidents at Samsung Electronics and two vice chairmen under chairman Lee.


Samsung also promoted Lee Boo-jin, daughter of Samsung Electronics chairman Lee, as president and chief executive of Hotel Shilla.

Shares in Hotel Shilla ended 3.4 percent higher.

“There are broader expectations about the new, young generation that will lead the group now. And Ms. Lee in particular has a very strong track record of achievement at Hotel Shilla,” said an analyst who declined to be named.

“However Jay Y. Lee has homework to do here.”

Samsung said Lee, as COO, has strengthened the strategic relationships with key global customers and business partners, and solidified its leadership position in chips and displays with preemptive business investments.

Since he finished school, Lee has been on a fast track to power, undertaking senior roles such as chief customer officer of Samsung Electronics and an executive title for S-LCD, Samsung’s flat-screen joint venture with Japan’s Sony Corp.

One of his lowest moments came in 2000, when he ran Samsung’s Internet business during the dot com boom and the firm incurred losses of some 20 billion won before folding the business.

Additional reporting by Jungyoun Park; Editing by Anshuman Daga

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