Opinion | Samsung’s Lee family succession crisis shows the importance of long-term planning

In 1938, a young man who had just lost his father used the inheritance money from his landowning family to set up a trucking company to ship fish, vegetables and fruit on the Korean peninsula and even across the sea to Manchuria and Beijing.

Rather than naming the company with his own surname, Lee, a common one in Korea, Lee Byung-chull called the enterprise Samsung, meaning three stars. It turned out to be a lucky omen, at least for the firm’s first two generations of leaders. The third “star”, Lee Jae-yong, Samsung’s 49-year-old de facto leader, had just started to shine when the dimmer switch started to erode his lustre. But light could still emerge from the young man.

Family-run businesses in China and throughout Asia have a lot to learn from the tumultuous events surrounding the recent conviction of the third generation leader of the Lee family. On August 25 August, a South Korean court sentenced Lee to five years in prison for bribing the country’s former president. Following an exhaustive trial, a panel of three judges had found him guilty of embezzling Samsung funds, hiding assets overseas, concealing profit derived from criminal acts, and perjury. Prosecutors had sought a 12-year prison term, but the judges gave him the mandatory minimum sentence. The verdict is not yet final, since Lee Jae-yong’s lawyers have appealed against the decision. He will remain in a Seoul prison, until the South Korean high courts make a final ruling, which is expected in January next year.

The strange turn of events may not appear relevant to many family business leaders outside South Korea, since it is the only country in the world where economic power is concentrated in the hands of family-run conglomerates called Chaebol. But in reality, the succession crisis experienced by the Lee family may have some enriching lessons for other family businesses.

In early May 2014, just three years before his trial and conviction, Lee received the devastating news that his father Lee Kun-hee had suffered a massive heart attack, rendering him totally incapacitated. Along with his mother and two sisters, he rushed to his bedside. But the stricken man was incapable of uttering any words of advice. Since then the charismatic second-generation leader of Samsung has been kept alive in the Samsung Medical Centre in Seoul, a hospital that the family built and owns. It was an enormous loss for the young heir, who since birth had looked up to this giant of an industrial leader who transformed Samsung into a global powerhouse during his 50-year tenure.

His only son was suddenly forced to step into his shoes, a move that the naturally reserved heir had only just begun to prepare for. Unfortunately, he had no choice. Korea’s largest company, Samsung generates about 20 per cent of revenues for the entire country. He could not just walk away from the empire that his father and grandfather had created, leaving Samsung and its hundreds of thousands of employees leaderless.

Lee and his predecessors had contributed many positive virtues to the family business: their loyalty to stakeholders, the determination to survive by sticking to innovative products, the ability to favour a long-term approach over short-termism, and always putting the future squarely into the hands of the next generation. All of these assets had grown stronger under the leadership of the second-generation leader Lee Kun-hee. The younger Lee rightly saw his future ownership and control of Samsung as an invincible force to be reckoned with. However what was missing from the equation was a long-term plan and it was this oversight that began to weigh heavily on the heir and overshadow all the positive virtues contributed by the Lee family members to the business.