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February 9, 2006 12:23 am

Samsung looks for love to end year of tumult

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Money can’t buy you love, the song goes, but Samsung is trying. And so far the South Korean conglomerate’s attempts to donate its way out of controversy have been met positively at home.

Korea’s biggest and most successful chaebol is renowned globally for its stylish mobile phones and flat-screen televisions but the past year has been a tumultuous one at home.

Last year was the year of Samsung scandals: from the tapes that allegedly revealed the group’s plans to bribe presidential candidates to the illegal share transfers that apparently illustrated plans to pass control to the third-generation of the controlling Lee family.

With Won1,000bn ($1.03bn) in donations and an uncharacteristic apology from its head, Samsung has this week tried to draw a line under the controversies and public relations disasters.

“I have put all my energy into corporate management so far but failed to pay enough attention to meeting expectations of the people,” Lee Kun-hee, Samsung’s chairman and Korea’s richest man, said upon his long-awaited return to Seoul from self-imposed exile this week.

The statement and accompanying donations, pledges to strengthen the independence of management and moves to drop legal action against the government represent the most concrete evidence yet that Samsung is willing to mend its ways.

Jang Ha-sung, dean of Korea University’s business school and a leading corporate governance expert, said the apology was the most significant part of this week’s about-face.

“The fact that Lee Kun-hee apologised to the people means a whole lot more than the money,” Prof Jang said. “This is the first time that Samsung has ever listened to the people who were criticising them and responded in a positive way.”

Koreans have developed a love-hate relationship with Samsung. While they recognise the crucial role the conglomerate played in the country’s rapid economic transformation, they are increasingly concerned at the group’s overwhelming economic and political influence. Amid resentment over the Lee family’s apparent plans to consolidate its power by passing control of the group to Mr Lee’s only son, Lee Jae-yong, the group began a campaign to become a “more loved company” at home. But its troubles mounted last year with the surfacing of secret tapes that were alleged to have revealed Samsung had paid Won10bn in bribes to presidential candidates during the 1997 Korean election campaign, with Mr Lee’s blessing.

The 64-year-old chairman – who has been undergoing treatment for lung cancer – left for the US just as prosecutors began investigating the secret tape allegations, meaning he was unable to be questioned over the tape scandal, in which he was later cleared.

Shortly afterwards, a Seoul court convicted two top executives at Samsung Everland, the amusement park affiliate that acts as the group’s de facto holding company, for conspiring in a deal to help Mr Lee’s children buy a majority stake at below market prices. So the group’s announcement this week that it would donate Won590bn of Lee family money and Won410bn from Samsung’s coffers to “Korean society” and unspecified charities, took many Koreans by surprise. Indeed, some are hopeful that the apology will usher in a new era of responsibility and transparency at Samsung, notorious for its complex web of cross-shareholdings that obscures its ownership.

“We hope it is the beginning of an evolution for Korean conglomerates,” said the leftist Hankyoreh newspaper, one of the group’s most ardent critics. Others, however, are not so convinced, saying the move was merely damage control.

“This is not a small amount and Samsung is not going to give up this much money for nothing,” said one Korean fund manager, asking not to be named. “They will be expecting something in return.” Shareholders were also unlikely to be happy with Mr Lee “taking all the credit” for the donations when Won410bn will come from company money, he said.

Hank Morris, a business adviser at Industrial Research and Consulting in Seoul, said the remedy illustrated the way Korean chaebol families could exercise control over the groups in spite of usually having only single-digit shareholdings.

“This all goes back to the lack of clarity at chaebol,” Mr Morris said.

Samsung’s disparate array of interests means Koreans are still likely to feel uncomfortable with its influence and investors are still likely to question the wisdom of some investments.

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