SEOUL (Reuters) - Lawyers for Lee Kun-hee said on Wednesday the chairman of Samsung Electronics had been chosen by his father, the Samsung Group’s founder, to lead the conglomerate and so was free to transfer shares of group companies to maintain control.
Lee, South Korea’s richest man, is defending three lawsuits from relatives who claim around $1 billion of Samsung assets they say Lee inherited and hid in nominee accounts.
There’s little chance Lee will lose control of Samsung, one of South Korea’s chaebol - the sprawling family-owned industrial groups that wield huge economic and political clout - but the public spat over a small part of the Samsung fortune may dent his plans for a smooth handover to his only son, Jay Lee.
In opening remarks before a packed Seoul Central District Court, Lee’s lawyers argued that the group’s founder, Lee Byung-chull, made it clear before he died in 1987 that Lee would inherit his shares in Samsung Electronics and Samsung Life, an insurance company at the heart of a web of group cross-shareholdings.
“The Samsung founder had said clearly he will have Lee Kun-hee take over from him to lead the group ... and that naturally includes his will to transfer shares (of key Samsung companies) to the defendant to ensure his management control,” Yun Jae-yun, a former judge representing Lee, told the court.
Lawyers for Lee’s elder brother, Maeng-hee, who is in his 80s, a sister and another relative said they did not know until last year about $3.8 billion of assets that Lee inherited.
The lawyers, from Yoon and Yang, said Samsung’s founder had never said that any plan for Lee to assume control of the group included inheriting all his father’s assets. “The plaintiffs had not been aware of the existence of such assets held in nominee accounts, and these should be distributed to those entitled to the inheritance,” they said.
In recent weeks Maeng-hee called his younger septuagenarian brother “greedy” and “childish”. Kun-hee has said Maeng-hee was turfed out of the family and not judged fit to lead Samsung, which was founded in 1938 and has grown into the world’s largest smartphone, TV and memory chip maker.
Samsung on Tuesday launched its latest Galaxy S III smartphone into an expectant market. Samsung sold 44.5 million smartphones in January-March - equal to nearly 21,000 every hour - giving it 30.6 percent market share, well ahead of Apple Inc’s rival iPhone.
The hearing, which will resume on June 27, may shed more light on how the Lee family maintains its grip on the phones-to-ships group, some details of which emerged in a 2008 lawsuit when Kun-hee was found guilty of financial wrongdoing and tax evasion. He was later pardoned by South Korea’s president.
“It’s generally not in one’s favor to bet against the House of Samsung and the chairman for domestic legal issues - where such influence often transcends economic borders into legal ones,” Jasper Kim, a professor of international business law and finance at Ewha University’s graduate school, said before Wednesday’s hearing.
The Samsung Group is effectively controlled by Samsung Everland, a small zoo and theme park company with equity capital of just $10.7 million. If Kun-hee’s stake in Samsung Life - he is the biggest shareholder with 20.76 percent - falls below Everland’s 19.34 percent, Everland would, under South Korean law, be forced to sell stakes in non-financial companies, including Samsung Electronics.
Maeng-hee and the other plaintiffs are seeking a quarter of Kun-hee’s stake in Samsung Life.
In the run-up to the hearing, Hyundai Securities analyst Jun Yong-ki predicted Lee would prefer to settle in cash because losing some of his stake in Samsung Life could spark a bigger ownership restructuring across the group.
Samsung has declined to comment as the litigation is a personal, civil case.
Lee Maeng-hee was chosen to lead Samsung in 1967 when his father retired, but his aggressive management style caused friction with the founder’s confidants, according to several books about Samsung. Ties were finally severed after a coup by the founder’s second son, Chang-hee, who told the presidential office his father had a $1 million slush fund overseas.
Lee Byung-chull believed his eldest son was also involved in the plot to discredit him. He exiled Chang-hee to the United States, and returned as chairman himself. In 1976, when diagnosed with cancer, he decided Kun-hee should take over the business. Chang-hee died in 1991.
In a recent book on Maeng-hee, “Prince Sado of Samsung”, Lee Yong-u, no relation, wrote that Maeng-hee failed in his succession bid due to a conspiracy by the founder’s inner circle, which included Kun-hee’s father-in-law.
As and when Jay Lee takes over, there is likely to be closer public scrutiny amid growing anger over chaebols’ dominance in an economy where wealth gaps are widening.
“It’s not clear whether the share transfer scheme to Jay Lee will be clawed back by the courts at this point, from a legal purview,” said Ewha’s Kim.
Jay Lee, 43, has yet to make any significant mark on the business, beyond a failed e-commerce venture during the dotcom bubble. Critics say he lacks his father’s charisma, business insight and entrepreneurship. The snappily dressed and bespectacled Lee has a degree in East Asian history from Seoul National University, an MBA from Keio University in Japan and also attended the doctoral program at Harvard Business School. He has two children and went through one of Korea’s highest profile divorce cases.
The Lee family has been criticized by activist shareholders over its obscure share dealings and, longer term, there is a risk that a focus on keeping it in the family may damage the group.
“The current Samsung Group transfer of power dynamics resembles the Roman Empire at or near its peak,” said Ewha’s Kim.
($1 = 1172.7000 Korean won)
Additional reporting by Choonsik Yoo, David Chance and Jungyoon Lee; Editing by Ian Geoghegan