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[Editorial] New Samsung

Conglomerate abandons fleet-style management of affiliates

The reforms announced by Samsung Group are welcome, but the conglomerate’s own efforts will not be sufficient to address the problems that impelled it to revamp itself, such as corrupt ties between businesses and politics.

The reforms announced Tuesday were prompted by the influence-peddling scandal involving President Park Geun-hye and her confidante Choi Soon-sil. But the scope and boldness of the plans were greater than expected.

That reflects how seriously Samsung and its jailed leader Lee Jae-yong are taking the current crisis engulfing the nation’s top conglomerate.

The most noteworthy point of the reform is the abandonment of its top-down, fleet-style management of the 59 affiliates belonging to the biggest chaebol.

Most symbolic was the disbandment of the Future Strategy Office, which -- under different names over the years -- has acted as a control tower for the group since its founding in 1959.

Working under direct control of the boss, the office wielded strong power by taking charge of personnel, finances, audits, media relations and legal and government affairs for the entire group.

Having started as a secretariat for Samsung founder Lee Byung-chull, the office also played a key role in ensuring the founding family’s dynastic succession of management control and served as a liaison office between the chairman, government officials and politicians.

The disbanded Future Strategy Office was also accused of having played a major role in giving suspicious money to Choi, for which the junior Lee was put into custody on suspicion of bribery.

The office was a target of lawmakers during the parliamentary hearing on Lee and other chaebol tycoons. Lee said he would abolish the office if the public had such a negative view of it.

Despite Lee’s pledge, few expected him to act so swiftly, because he was under investigation -- by the state prosecution and then the independent counsel. Some also doubted that he could break away from a tradition so cherished by his grandfather and father.

As if to dispel such skepticism, Samsung made it clear that now each affiliate will be run independently by its CEO and board. There will no longer be a regular meeting of CEOs.

Starting this fall, there will be no more group-wide, simultaneous recruitment of new employees. The internet home page and blog for Samsung Group will be shut down. In short, the name “Samsung Group” will fade into history.

It remains to be seen how those changes -- a bold experiment -- would affect the competiveness of Samsung units, which altogether employ 500,000 employees, make a combined revenue of 400 trillion won ($350 billion) and account for 30 percent of the total market capitalization.

Another key reform action, also prompted by the Choi scandal, is to increase transparency in donations and contributions. For instance, Samsung Electronics has decided to strengthen internal review of donations and will now require donations of 1 billion won or more to be authorized by the board.

That would certainly help prevent owner family members or top executives from misusing company funds, which is exactly what happened in the Choi scandal. More chaebol such as Hyundai Motor, SK and LG should follow.

The four conglomerates and the steel giant Posco have already withdrawn from the Federation of Korean Industries, a business lobby that acted as a channel for the money conglomerates donated to two foundations controlled by Choi.

All in all, Samsung’s move to break away from some of the traditions that have been identified with chaebol over the past decades will have significant bearing on other conglomerates. How Samsung follows up on the plans will be closely watched.
Korea Herald daum