Samsung Electronics: Unloved at Home
Reputation Suffers in Korea as Critics
Blast Ethics, Debt and Succession Plans
By EVAN RAMSTAD
Staff Reporter of THE WALL STREET JOURNAL
October 10, 2005; Page B2
Just as Samsung Electronics Co. is trying to boost its image around the world with new appliances, products and global advertising, its reputation is taking a pounding at home.
For almost three months, the South Korean company has been attacked by consumers, businesses, prosecutors, lawmakers and even the country's president. The blasts have come on subjects ranging from alleged political payoffs to corporate debts to the succession plans of its founding family.
The tide of criticism -- a sign of the mixed feelings Koreans have toward a national champion that many people both admire and dislike -- reached high levels Wednesday when Samsung Electronics' chief executive officer and chief financial officer appeared before a committee of Korea's National Assembly to answer questions. A day earlier, two executives from an affiliated company were convicted of defrauding investors in a financial transaction made by Samsung Chairman Lee Kun Hee to transfer power to his son. Those convictions reinvigorated a five-year-old probe into the transaction, prosecutors said.
The homegrown headaches are making a difficult year even harder for the electronics giant. Its profit for the first six months of 2005 was down about 50% from the record year-earlier level. Its third-quarter profit, which will be reported Friday, is expected to be about 30% below last year's level.
Yet Samsung Electronics' performance problems are rooted in industry dynamics rather than legal issues. Its shares, traded only in Korea, are near a record high, helped by surging domestic investment triggered by new retirement accounts and restrictions on real-estate speculation. The company just launched a global image campaign featuring tongue-in-cheek TV commercials and has come out with a four-door refrigerator, among other distinctive new products.
Asked whether executives are worried the controversies will damage the image of the Samsung Group conglomerate and its crown jewel, Samsung Electronics, a spokesman for the group said, "We are concerned about all these issues that are surrounding us right now."
The disputes, which aren't new, resurfaced after a Korean television network in late July broadcast an audiotape of a purported 1997 conversation between two Samsung Group executives discussing payments to political figures. As the broadcast, dubbed the X-Files Tapes, received daily attention in the local news media, deep-rooted controversies over Samsung re-emerged as lawmakers and consumers felt more comfortable criticizing the country's largest conglomerate, or chaebol.
"In a way, Samsung has become a little too powerful for their own good," says Kim Young Joon, a Korean lawyer based in Hong Kong who represents international companies that do business in the country.
Koreans are proud of Samsung, particularly the growth and technical accomplishments of the electronics company, says Kim Joo Young, a Seoul attorney who is a former executive director of the Center for Corporate Governance in Korea. But he adds, "We are very much afraid of Samsung's power, that Samsung can override the law and can make white seem black. The X-Files proved such fears."
During last week's hearing at the National Assembly, some lawmakers admonished Samsung executives to remember that the company's size doesn't put it above the law.
"Samsung has to become the loved company that gives pride in accordance to the expectations of the people," said Park Byeong Seug, one of the lawmakers.
In addition to the matter of alleged political payoffs, three other disputes now envelop Samsung. The first, which was the subject of last week's convictions, involves a 1996 deal that is part of a transfer of control of Samsung Group from Mr. Lee to his son. The second is a 1997 law, which Samsung disagrees with, that limits the stake that financial units of a Korean conglomerate can hold in other parts of the same conglomerate. South Korean President Roh Moo Hyun recently criticized Samsung for its resistance to the law, calling its position "problematic."
The third involves the repayment of a $2 billion debt run up by Samsung Motors Corp., which collapsed in 1999, to Korean banks and other creditors. Samsung wants to renegotiate that obligation, which was shifted to other units of the conglomerate.
Mr. Lee, Korea's richest man, left the country early last month and didn't return for last week's National Assembly hearing. He also isn't expected to answer a summons to appear before another committee today. A spokesman said Mr. Lee is seeking medical attention in the U.S.
For years, critics have complained that Mr. Lee, while fighting to preserve control of the conglomerate his father started, has made himself largely unaccountable for business decisions. He has declined to meet shareholders, lawmakers, reporters and the critics. During a storm last year over another episode of alleged political payments, he spent four months outside Korea, returning after being cleared by investigators. |
