Citizens restless in ‘republic of Samsung'

In South Korea you can wake up in your Samsung Construction-built flat, eat breakfast from your Samsung fridge while watching your Samsung TV, and then go to work at Samsung Life Insurance.

At the weekend you can take the children to Everland, Samsung's answer to Disneyland, or go shopping at Samsung Tesco, paying with your Samsung card. In short, there are few corners of Korean life where Samsung's tentacles do not reach.

With about 62 affiliates, the family-run conglomerate, or chaebol, accounts for almost a quarter of the country's exports and stock market, while the $6bn (€5bn) and more it pays in tax each year represents about 8 per cent of government income.

But Samsung's power has become a problem. Famous the world over for itscutting-edge mobile phones and flat-screen television sets, at home it is increasingly derided for turning the country into the “republic of Samsung”.

Lee Kun-hee, the group's chairman and son of its founder, is disparagingly referred to as the “emperor”.

Last month anti-Samsung sentiment overflowed when Mr Lee showed up at Korea University's new Centennial Memorial Hall, to which the group had donated Won41.8bn ($42m), to receive an honorary doctorate. About 100 students jostled him and blocked his entry as they protested against Samsung's policy towards unions. The students' criticisms focused on Samsung's outlawing of unions an incendiary tactic in a society notorious for its militant labour movement. There has also been concern about corporate governance, which lags behind international standards as it does at many South Korean companies.

The incident has spurred Samsung into action. Recently, executives met to consider ways of softening the anti-Samsung sentiment. The chaebol now wants to promote itself as “an enterprise loved by the nation”.

“Korean people generally approve very much of the critical role that Samsung plays in the overall economy,” says Chu Woo-sik, the vice-president in charge of investor and public relations at Samsung Electronics. “But at the same time, people feel that Samsung has become too dominant. We feel we should be sensitive to people's opinions, even if it's just 1 per cent of people who feel that way.”

Samsung plans to do that by creating a friendlier image and becoming more transparent and involved in community projects.

Samsung's response to its critics suggests the public is succeeding where the government has largely failed.

President Roh Moo-hyun made curbing the chaebol's influence one of his priorities when he came to power in 2003. But conglomerates succeeded in having his initiatives such as class-action lawsuits for accounting fraud and limits on cross-investment in affiliates watered down.

Winning over its detractors will be a tricky task for Samsung. Koreans have a love-hate relationship with it. They enjoy the benefits of the industrialisation that Samsung and other chaebol have brought but still bristle at its immense economic and political power.

Industry experts doubt that the public relations offensive will work. “This company has built a stellar image around the world but it is not respected in its own country. It has to question why that is,” says one of Seoul's top public relations executives. “I think the problem runs much deeper than they are admitting.” Apart from outlawing unions, Samsung's corporate structure though just as murky as those at many other conglomerates has struck a raw nerve. Mr Lee himself owns just 1.9 per cent of Samsung Electronics, the group's flagship company, but wields much greater influence because of a complex series of cross-shareholdings.

The Korea Development Institute calculates the Lee family exercises voting rights in affiliates that are 17 times greater than its actual shareholdings.

These concerns are likely to intensify as the chairman prepares to pass on the Samsung crown to his son, Lee Jae-yong, who is the biggest shareholder of Everland Amusement Park, Samsung's de facto holding company, with 25 per cent. Critics say the succession will underline the family's grip on power and show how far out of step it is with global corporate governance standards.

Yet for all the distaste at Samsung's methods, the irony is that South Korea remains heavily dependent on the chaebol's success.

“It's quite paradoxical,” Samsung's Mr Chu says. “For Korea to rise to the level of an advanced economy with a per capita annual income of $20,000 what is needed is a couple more Samsungs.”