SEOUL — When it comes to dynastic succession, South Korea may not be as different from North Korea as it appears.
In the North, Kim Jong Il spent several years preparing his son Kim Jong Un to become the third-generation ruler of the secretive communist state upon his death, which then happened at the end of 2011.
In the South, Lee Kun-hee, the chairman of the sprawling Samsung empire, has been preparing his son, Lee Jae-yong, to become the third-generation ruler of the secretive capitalist behemoth upon his death.
That hasn’t happened yet, but with the 72-year-old Lee incapacitated — he has been hospitalized and unable to speak since a heart attack in May — his son and heir apparent, officially still vice chairman, has been effectively running the company.
As with North Korea, although to a far lesser extent, the process is surrounded by mystery.
Both Lees keep low public profiles in South Korea. Only a select few of Samsung Electronics’ 286,000 employees worldwide have met either of them, and Samsung spokesmen guffaw incredulously when asked whether they’ve ever had meetings with Jay Y. Lee (as the son likes to be called).
“In Korea, we call this ‘emperor management,’ ” said one Samsung insider, describing the pedestals occupied by the owners of the diversified conglomerates known here as “chaebol.”
“He is unquestionable,” the insider said of any chaebol owner. “The word of the owner is like the word of the emperor, the word of God, and it can’t be refuted in any way.”
Still, Jay Y. Lee is a much more modern executive than his father. The 46-year-old is relaxed and personable in the flesh, and he speaks English and Japanese fluently. (He has an MBA from Keio University in Tokyo and spent several years at Harvard Business School, although he did not graduate.)
He is often called the “crown prince of Samsung” here and has taken leadership positions in recent years as part of a succession plan, culminating in his elevation to vice chairman in 2012.
Samsung objected to the characterization of “emperor management” at the company, with spokeswoman Rhee So-eui saying that each Samsung affiliate has outside directors on its board and pointing out that foreign investors hold about half of Samsung Electronics’ shares.
“Samsung’s founding family has a vital role in management by providing long-term vision for sustainable growth, but they work in concert with highly qualified professional managers,” she said.
Still, the younger Lee is taking over at a critical time for Samsung and for South Korea as a whole — because in many ways, Samsung is South Korea.
The conglomerate, famous abroad for producing Galaxy smartphones and flat-screen TVs, is ubiquitous here. With more than 70 affiliates, it makes up about 20 percent of the economy.
Samsung does shipbuilding and apartment construction, has theme parks and a baseball team, sells life insurance and stocks, and operates hospitals complete with maternity wards and funeral rooms. Koreans joke that they can live from cradle to grave in the “Republic of Samsung.”
The chaebol, which received generous government support in the 1960s in particular, are credited with powering South Korea’s astonishing transformation from a third-world, agrarian backwater half a century ago into the high-tech economic powerhouse it is today.
But South Koreans are starting to bristle at the stranglehold that a few families — the Chungs who run Hyundai Motor also are preparing for third-generation leadership — maintain on the economy.
Lee Kun-hee, who has run Samsung since his father died in 1987, owns only 3.4 percent of Samsung Electronics, and Jay Y. Lee has less than 1 percent. But through a complicated cross-shareholding structure — a diagram of Samsung affiliates’ connections looks like a bowl of spaghetti — the family controls the entire company.
The family also is viewed as receiving special treatment.
The elder Lee was convicted of tax evasion and given a three-year suspended sentence in 2008 for selling bonds to his children at below-market prices, part of the preparations for keeping control in the family. (Lee has two daughters who also are involved in the business. Another daughter committed suicide in New York in 2005.)
He stepped down as chairman and also from his position on the International Olympic Committee. But he was pardoned in 2009 and returned to both roles, just in time to help South Korea make its third — and ultimately successful — bid for the Winter Olympics, which the country will host in 2018.
Still, things are changing in the country.
The government is enacting rules that will require the separation of financial and non-financial businesses, which will make it much harder for insurance and securities firms to coexist with affiliated companies that make phones and refrigerators.
Samsung is preparing to list two affiliates on the stock exchange — SDS, an IT services division, and Cheil Industries, Samsung Group’s de facto holding company previously known as Everland — to help the company comply with the new rules.
But that raises various issues. Listing could dilute the family’s hold on power, as Jay Y. Lee owns a quarter of Cheil Industries. Changes to the ownership structure also could land the family with a multibillion-dollar tax bill.
“Now the question is how to consolidate Lee Jae-yong’s position. They can’t do it the old way because it’s illegal and society won’t allow it,” said Kim Sang-jo, an economics professor at Hansung University and head of Solidarity for Economic Reform, a chaebol watchdog.
“He and Samsung should drop their arrogant attitude and present themselves as a legitimate company that abides by the laws of South Korea,” Kim said.
But people at the company are much more concerned about their business future than they are about who sits in the corner offices.
The outlook is darkening for Samsung (which literally means “three stars”). Its Galaxy, a rival to Apple’s iPhone, had propelled the electronics division to new heights in recent years, helping it to leave longtime rivals such as Sony in the dust.
Samsung this week warned that its earnings would fall to less than $4 billion in the third quarter, 60 percent lower than the year before. It blamed intense competition from cheaper Chinese cellphone makers.
Jittery investors have been selling Samsung Electronics stock, wiping more than $30 billion off its market value this year.
That means that Jay Y. Lee is taking over in an environment that even the most experienced manager would find challenging.
“Many people don’t know what kind of leader he’s going to be, because no one knows his qualities,” said Chang Sea-jin, a professor at KAIST College of Business in Seoul. His only
balance-sheet responsibility was for e-Samsung, an Internet venture that failed with heavy losses when the dot-com bubble burst in the early 2000s.
Many Koreans do not accept that the younger Lee is the best of all candidates to run the huge conglomerate.
“Q. If Jae-yong hadn’t been born as the son of Lee Kun-hee, I wonder how far he would’ve gone in Samsung?” a Twitter user called Andrew Lee asked recently. “A: Samsung entrance exam failure.”
But, Chang said, Koreans must accept Jay Y. Lee’s succession as a matter of fact. “Whether we like it or not, he’s going to be the next chairman.”
Yoonjung Seo contributed to this report.