Samsung + time = the Wallenbergs?

Image: Techstage/Flickr. CC BY-ND 2.0

Image: Techstage/Flickr. CC BY-ND 2.0

One is reviled as a behemoth which short-changes shareholders at the expense of family owners, while the other is held up as a shining example of family ownership. But are the Samsung and Wallenberg empires really so different? 

Samsung is not the best loved of companies. Like the other chaebols which dominate the South Korean economy - such as LG, Hyundai and Lotte - it is a vast empire whose businesses reach into many sectors. Samsung might be best known for its phones, but its 60-plus firms also include insurance companies and theme parks.

What makes this unpalatable to many is that the chaebols’ founders tend to own few shares in their businesses, but using a complicated web of cross-holdings control a large amount of votes. Samsung’s Lee family, for instance, own just 1.3% of shares but control 53% of votes in their empire.

But things are changing. Samsung recently said that it is to split the CEO and chairman role at all of its companies. This will please shareholders, who became exasperated last year when Samsung insisted on merging its engineering arm and its holding company, something which was widely seen as benefiting the family and nobody else, and demanded change.

At Business Family we are enthusiastic - but not uncritical - cheerleaders for family ownership, and to us Samsung’s moves to bring the company “into alignment with global practices”, in the words of the Wall Street Journal, look positive, as are plans to give more money to shareholders. (Chaebols are notoriously stingy in this regard.)

What is driving this change? Partly it is pressure from the South Korean government, which is moving to address long-standing resentment of the chaebols by pressuring them to untangle some of their cross-holdings.

It is probably also related to the rise of third-generation Lee Jae-Yong, who has become de facto head of the family conglomerate since his father was hospitalised in 2014. While his father is a formidable character (he once burned and then bulldozed 150,000 substandard phones in front of his workers) and was revered as a god by employees, Lee Jr is a gentler presence.

He is said to fit in well in Silicon Valley and was friends with Steve Jobs (he attended the Apple boss's funeral) and speaks three languages. He studied for five years at Harvard for a PhD.

It would not be surprising if Lee, with his Westernised outlook, continued the opening-up process. Shareholders might never be satisfied, but if the direction of travel remains the same Samsung could change profoundly, and start resembling something quite different - namely the Wallenberg empire.

Teddy bear vs Godzilla

On the face of it, the century-old Swedish investment house and the South Korean behemoth are very different. Sweden’s Wallenberg family have been investing for over a century and their investment company Investor - which has shares in engineering firm Atlas Copco, Astra Zeneca and Saab, among many others - is seen as a benign Nordic teddy bear that fosters its businesses, while Samsung is sometimes portrayed as a rapacious Godzilla.

But there are similarities. Both are hugely important in their countries. At their peak in the 1970s, businesses owned by the Wallenbergs accounted for 40% of the Swedish stock exchange’s market capitalisation, as reported in a recent Economist article. They have less clout now, but the figure is probably around 30%. Samsung is similarly dominant, and accounts for about 20% of South Korean GDP.

The Wallenbergs, for all the benefit they bring to the Swedish economy in terms of good governance and hard-won expertise, run a complicated set-up. A foundation owns 50.1% of Investor which in turn has various divisions. Also, they make use of dual-class shares to keep control: their investment company has 5.3% of stock in telecoms firm Ericsson, but 21.5% of votes.

So, both empires have cross-holdings and both maintain power through dual-shares. Both are hugely influential in their own countries. Both appear determined to remain family-owned.

Samsung was founded - as a seller of groceries - in 1938, so by most standards it is old. But the Wallenbergs founded their first business, a bank, in 1856. What is the difference between Samsung and the Wallenbergs? Perhaps the answer is as simple as this: 84 years.

© Business Family 2016