Be informed

A few years’ ago, I watched a documentary about corruption at Olympus (the Japanese camera/optics firm). I was rather disturbed by it. To the western viewer, there was unacceptable fraud being perpetrated by Japanese executives. The British-company president at the time, Michael Woodford, found that dealing with it was not straightforward and could be dangerous. What he could not understand with his capitalist mindset was that losses were not only about honour in Japanese society, but also about social welfare – the interests of generations of employees (Olympus people) were intertwined with the fortunes of the company. The Japanese executives did what they could to avoid the collapse of the company for that reason – something that is difficult for a western mindset to embrace.

So in reading Geoffrey Cain’s book (left) about South Korea’s Samsung corporation, packed full of examples of fraudulent business activities, should I try to understand the cultural imperatives and conclude the book was a good read? Which it is, though the style as a thriller is annoying, but that is just me again. Samsung is a family business traded on foreign stock markets. It is the cornerstone of the South Korean economy, run as a business empire with a patriarch who can be convicted numerous times for services to the ruling family and somehow evade the full force of the criminal justice system. The book concludes just at the point where the current patriarch, Lee Jae-yong (Jay Lee), was facing a re-trial on bribery charges after a successful appeal by prosecutors to the Supreme Court.

The charges are intimately linked to Lee Jae-yong’s attempts to retain control over the company and not pay much inheritance tax in the process. Although Samsung is traded on stock markets,

1999 Samsung SQ5, later called SM5

investors do not buy a stake in the parent; there is a lot of cross-shareholding that does two things. It blurs the precise nature of who owns what whilst ensuring a controlling role for family members. It is a conglomerate, but at the same time not. Family members control the affiliate businesses including a theme park, a hospital, shipbuilding, fashion and chipsets. It made motor cars in my lifetime (right) The cross-shareholding allows the family to retain control with relatively small shareholding. The structure is frequently adjusted in the interests of the Lee family.

In 2015 one of these adjustments involved two affiliates merging to the considerable detriment of the financial interests of the existing shareholders of one of those affiliates, C&T such that it was being valued at less-than zero. As Cain notes: “Samsung argued that this was an attempt to consolidate business units…Jay Lee owned a 23 percent stake in Cheil Industries, the company acquiring Samsung C&T [Construction and Trading], which in turn owned a 4 percent stake in Samsung Electronics, the crown jewel. The merger would simplify and solidify Jay Lee’s control of Samsung Electronics through this shareholding web, starting with Cheil at the top” (p245). To make matters worse, the family managed to convince one of the largest institutional investors, The National Pension Service (NPS), to support the merger despite it not being in the interests of its own stakeholders; namely, South Korean pensioners and those hoping to retire on a pension. In the end, a combination of the devaluing of the NPS’s shareholding and the stock market’s response, it lost $500m – a straight transfer from the people to an industrial elite!

Even a US hedge fund, Elliott Management, led by Paul Elliott Singer, failed to stop it. Singer himself was described by Bloomberg as “The World’s Most Feared Investor”. Samsung engaged in some pretty unsavoury propaganda to discredit him. Singer is Jewish and Samsung went full-on antisemitism even going to the point of setting up a website called “Vulture Man” with a slide show depicting a vulture, thought to be a caricature of Singer, “whose sadistic practices consisted of plotting and preying on the poor and disenfranchised around the world” (p250).

Samsung’s origins are uncomfortable from a 21st Century context. Its founder, BC Lee, was educated in Japan and was enamoured to say the least by Japanese Zaibatsu, powerful family-dominated industrial and financial business empires, which fell victim to post-war reconstruction. Lee’s first business operation was in supplying vegetables to Japanese soldiers in Manchuria. That story itself has unsavoury implications, though from a business perspective, perfectly reasonable. A man familiar with Japanese cuisine supplies vegetables to customers in Manchuria. The fact that they were an occupying force is neither here nor there.

After WWII, the South was invaded by the North; 3 years’ of war saw most of Lee’s assets taken or looted. Lee then entered sugar refining and wool spinning, banking, insurance and chemicals. Samsung was intimately involved in the economic transformation of the country arising from the military coup in 1961 led by General Park Chung-hee after some horsetrading over the scope of Samsung business interests. Actually, the state wanted the banks.

The transformation into an electronics firm started to take shape with the acquisition of a semi-conductor firm in 1974. Always a supplier, Samsung powered the first iPhone. In fact without very close collaboration between the two firms the iPhone would not have made it to the market and that infamous 2007 presentation by Steve Jobs at the Macworld convention would not have happened. That event is itself a tale of trade-off and compromise.

Samsung seems to have been obsessed with beating competitors. First, Sony in terms of design and LCD screens/televisions. More famously, beating Apple, particularly in the American market for which Samsung employed a crack team of marketers led by Todd Pendleton. Their White Glove project culminated in one of the most famous non-selfies when Ellen deGeneres tried to make a selfie  with Meryl Streep using a Galaxy mobile at the Oscars ceremony in 2014. It ended up being the most-retweeted Tweet (right) featuring other stars such as Julia Roberts, Channing Tatum, Jennifer Lawrence, Bradley Cooper, Brad Pitt, Lupita Nyong’o, Jared Leto. And Kevin Spacey.

It is at this point in the book that I realise how meaningless life is.

The politics are much more interesting than the marketing; and much more unsavoury. Further words are expended on the PR disaster of the Galaxy Note 7 and the company’s insufficient recall policy and unwillingness to come clean about the cause, or indeed the danger. Readers will not be surprised to learn that there turns out to be considerable institutional causes over-and-above the design flaws. And then there is the premature release of the folding-screen phone that was so delicate that it broke by looking at it. Cain concludes, however, that we, the consumers, are just seduced by good products in nice cases. We will overlook the behaviour of the manufacturer in pursuit of consumption. My Samsung  S8+ is now into its fourth year. That is a testament to the product (and a bit to my care and attention to it). My next mobile will not be a Samsung.

25 October 2020 – death of Lee Kun-hee announced: https://www.theguardian.com/technology/2020/oct/25/lee-kun-hee-samsung-electronics-chairman-dies-aged-78

Pics: Samsung SQ5: raul • CC BY-SA 3.0