This story is part of Forbes’ coverage of Asia’s 50 Richest Families 2017. See the full list here.
Korea was still under Japanese rule in 1938 when Lee Byung-Chull opened a trading company named Samsung, meaning “three stars,” in the southeastern city of Daegu, including a flour mill for making noodles and trucks carrying fruit and fish to market.
The company took off after the Japanese defeat seven years later. By the time Lee died in 1987, third and youngest son Lee Kun-Hee was in control of an empire dominated by electronics and electrical products, shipbuilding, construction and finance. Satellite enterprises, penetrating mass culture, movies, publishing, department stores and convenience stores, soon separated as independent entities under the aegis of Kun-Hee’s two older brothers, two of his five older sisters and a brother-in-law.
The brother-in-law, Hong Seok-Hyun, rose within the Samsung empire thanks originally to the bond formed years earlier between his father, Hong Jin-Ki, and Lee Byung-Chull. When founding the newspaper JoongAng Ilbo in 1968, Lee asked Hong, a former cabinet minister under South Korea’s first president, Syngman Rhee, to run it. (JoongAng Media owns Forbes Korea, a licensee of Forbes Media.) Hong suggested Lee’s son, Kun-Hee, working at the paper, meet his daughter, Ra-Hee, Seok-Hyun’s sister.
The Lee family tree
Click to expand.
Now, as a third generation rises to the fore, the core Samsung group includes 62 companies, 16 of them on the Korea Stock Exchange with 25% of market capitalization led by flagship Samsung Electronics’ 20%. On the strength of its pricey new Galaxy Note 8 and semiconductor technology befitting the world’s leading chip maker, Electronics’ third-quarter sales totaled $55 billion, up nearly 29.7 % from last year, a quarterly operating profit of $12.8 billion, up a stupendous 179%, and a net quarterly profit of $9.87 billion, up from $4.03 billion, while stocks hit record highs.
Still successful
Samsung Electronics sales last year totaled nearly $180 billion out of overall group sales of $249 billion plus another $42 billion racked up by spin-offs from the group, including CJ, Hansol, Shinsegae and JoongAng Media. Accounting for 21% of Korea’s GDP, according to Chung Sun-Sup, CEO of the research firm Chaebul.com, the greater Samsung empire goes on growing though Electronics Chairman Lee Kun-Hee remains in a coma in Samsung Hospital after a heart attack in 2014. His son, Vice Chairman Lee Jae-Yong, ensnared in the scandal that led to the arrest of Park Geun-Hye, impeached as president and now in jail, languishes in prison appealing his five-year sentence for bribery and embezzlement.
Lee Jae-yong (C), vice chairman of Samsung Electronics Co., arrives for his trial at the Seoul Central District Court in Seoul on August 7, 2017. South Korean prosecutors on August 7 demanded the heir to the Samsung empire be jailed for 12 years over his role in the corruption scandal that brought down the country’s last president. (Photo credit: AHN YOUNG-JOON/AFP/Getty Images)
Clearly, these high-profile family misfortunes are having no immediate impact on Samsung Electronics. Lee Byung-Chull founded Samsung Electronic Industries in 1969 producing TVs and appliances. Then, seeing semiconductors as the gold mine of the future, he founded a semiconductor company when the field was in its infancy in the 1980’s. After his death, son Kun-Hee in 1988 merged the two firms into Samsung Electronics.
More on Forbes: Samsung Is Having A Great 2017 Despite Its Note 7 And Bribery Scandals
“Lee was a master of careful, cautious and shrewd decision-making,” says Geoffrey Cain, writing a book about the empire. He was suffering from lung cancer when he made “the incredibly risky decision in 1983 to enter semiconductors,” Cain goes on. “It worked. This allowed Samsung to turn Korea into a Republic of Samsung.”
Can the legacy of Lee Byung-Chull endure as an ever-growing phenomenon or will Lee Jae-Yong find that maintaining control from behind bars is not possible? “They are a dynasty,” says Kim Jong-Bo, a member of Lawyers for a Democratic Society, calling for reform of the chaebol system. “There will be a limit to keeping control of Samsung Electronics.”
The merger of Samsung C&T and Cheil Industries, of course, is front and center in the bribery cases against ousted President Park and jailed Vice Chairman Jay Y. Lee. Cheil, which was founded in 1954 as a textile firm and is not related to Cheil Jedang, took over Samsung C&T and kept its name for “brand recognition.” The net result was to increase the value of the stakes held by Jay Y. Lee, his two sisters and their bedridden father. Much to the family’s relief, a court ruled the merger was valid on its merits and not a ruse to guarantee control by descendants of the man who got it all started nearly 80 years ago.
Correction: A previous version of the story incorrectly stated that the merger of Samsung C&T and Cheil Industries increased the stakes held by Jay Y. Lee, his two sisters and their bedridden father. The story has been updated to reflect that the merger resulted in an increased value of the stakes held by the aforementioned executives.