Samsung's global success fails to mask reputational anxiety
Samsung Electronics recently found itself in an unusual public relations spat: the global technology group had to fend off claims its work culture was akin to North Korea.
The allegation — from the author of an upcoming book on Samsung — was “insulting”, said a company executive, aghast at the idea of likening one of the world’s most lucrative companies and biggest brands to the dictatorship.
But while the incident was a brief bump for Samsung in a turbulent 2017, it spoke to a deeper issue plaguing the company’s management: despite its soaring profits and global footprint, executives fret that the company has an image problem.
On Wednesday, the South Korean group is expected to report a record operating profit of $14.1bn for the last three months of 2017 — a 63 per cent jump from the previous year.
“Samsung is the Dr Jekyll and Mr Hyde of the technology world,” said Geoffrey Cain, author of The Republic of Samsung, who drew the parallel with North Korea.
“Its smartphones and televisions have a stellar reputation. That’s the Dr Jekyll side. Mr Hyde is the vexed corporate governance, the troubled family rule, the aggressive campaigns to control its image and . . . the image among [South] Koreans that it uses high prestige as a shield for wielding dark political power.”
Much of the furore surrounding Samsung’s image stems from its closed nature and murky governance. Executives rarely engage with the media and much of Samsung’s decision-making and structure is opaque.
The image issue has become particularly important in light of the impending verdict in the appeal of Lee Jae-yong, Samsung’s de facto chief and family heir, who was last year sentenced to five years in prison for bribing South Korea’s former president.
On Monday, a Seoul court will decide whether to release Lee, with the company fearing that negative public sentiment towards it could sway the verdict.
South Korea is in the midst of a broad crackdown on the excesses of its powerful family-run conglomerates, known as chaebol — groups that have increasingly become associated in their native land with corruption and cronyism.
The shifting corporate landscape has made it more important than ever for Samsung to overhaul its image.
But critics say the company has yet to demonstrate the necessary improvements to governance standards, pointing to the imprisonment of Lee as proof. A study by the Reputation Institute, a US-based consultancy, ranking 100 global companies in terms of social responsibility placed Samsung 89th last year — down from 20 in 2016.
“Samsung is scrambling to improve its disgraced image and working so hard to reform their brand following the political scandal,” said Park Joo Geun, head of corporate watchdog CEO Score.
The core issue, in the view of Kim Jin-bang, a professor of economics at Inha University, is that “Samsung has largely focused on amassing family members’ profits instead of putting a high priority on shareholder value”.
The reputational crisis at home belies global success. The company is a leader in sectors such as telecoms and semiconductor chips, a sector in which it is reaping the benefits of a boom that has sent memory chip prices and profits soaring.
Analysts caution, however, that a negative brand image could prove damaging over the long term.
“Samsung is seen abroad as a successful Asian tech company but people have an ambivalent relationship with it at home,” said Chang Sea-jin, professor at the National University of Singapore.
“Although Samsung continues to post record-breaking earnings thanks to memory chips, its performance can falter easily once the semiconductor cycle turns down with mobile phone sales slowing. So its poor corporate image at home could affect its business in the long term.”
Mr Park believes the upcoming court ruling could prove pivotal. “If Lee Jae-yong’s appeal fails, it is inevitable that foreign investors will be hesitant about signing any deal with Samsung, especially mergers and acquisitions which are a prerequisite for Samsung’s [future strategy],” he said.
Mr Cain agrees: “Who wants to bet on millions of dollars in shares in a company in which the vice-chairman is in jail, yet still sits on the board?”
Samsung conceded it had not made any big deals since the arrest of Lee, but denied that his incarceration had affected its ambitions in artificial intelligence and connected technologies.
The company declined to comment on questions about its corporate brand and reputation.
Employees told the Financial Times that executives were proud of Samsung’s dominance in the Android smartphone market but were worried the company was perceived as merely a manufacturing group and not a global technology innovator, like Apple.
But staff also point to the strict work culture and company hierarchy and the use until recently of huge team building exercises, which they say bear similarities to the mass synchronised performances common in North Korea.
In private, company executives say change is coming, albeit slowly. They note Samsung is seeking to appoint external, independent directors who would not solely reflect the interests of the founding family.
But efforts to internationalise the company’s workforce are also fraught. Employees point to tension between the old guard — who are loyal to the Lee family and the traditional company culture — and international recruits, who view professional management as a better path for the company.
Unlike local workers who are hired young and promoted along a prescribed path, expatriate staff can negotiate higher salaries, fuelling discord with their South Korean counterparts.
And despite Samsung’s pledges to change, some staff are sceptical.
“I do not think Samsung has a strong incentive to reform its governance or company culture. The company is massively profitable just as it is,” said one employee in Seoul. “Basically, I view Samsung as a Korean company that makes products for the world.”
Additional reporting by Kang Buseong and Song Jung-a
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