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Leadership successions at major chaebol groups

South Korea’s chaebol are changing the way they make official their plans for handing power down.

While the conglomerates have traditionally decided their succession of power after the chairman‘s death, the Hyosung Group and Dong-A Socio Holdings recently both moved to implement it while their chairmen are still alive.

On Dec. 29, Hyosung Group chairman Cho Seok-rae stepped down and eldest son and president Cho Hyun-joon was promoted in his place. This was followed by the Jan. 2 resignation of Kang Shin-ho as Dong-A Socio chairman Kang Shin-ho and the promotion of fourth son and vice chairman Kang Jung-sok to replace him. In both cases, power was being passed down from the founding family’s second to its third generation.

The methods used by Hyosung and Dong-A Socio are seen as a major change for the South Korean chaebol system - representing a break with the practice of only making the succession official once the chairman has passed away. Of the major chaebol, only fourth-ranked LG has an established tradition of handing down the management reins while the chairman is still alive.

Many in the business world see the change as the result of lessons learned from the strife between siblings in the Lotte Group over management authority last year.

“In Lotte‘s case, [founder and] general chairman Shin Kyuk-ho is now past 90, which makes it difficult for him to engage in normal management activities,” said a senior executive at one of the top 20 chaebol. “Many people say the way the succession kept getting put off is what brought about the management rights conflict between chairman Shin Dong-bin and his brother, vice chairman Shin Dong-joo, which has plunged the entire group into crisis.”

Another lesson came from Samsung, which has faced a double crisis with the threat of a management authority feud after the sudden vacuum left by chairman Lee Kun-hee’s illness and the business risk of struggles with its smartphone efforts.

Cho Seok-rae and Kang Shin-ho are fathers of three and four sons, respectively - and share a history of intense conflicts with them. Since 2013, Cho has all but disowned his second son, former Hyosung Heavy Industries vice president Cho Hyun-moon, amid a rift over differences in management philosophy and style. Kang has had frequent frictions with second son and Dong-A Socio vice chairman Kang Moon-seok since 2004 after replacing him as successor with fourth son Kang Jung-sok.

In Cho Seok-rae’s case, factors of old age and declining health - he is currently 82 - played a part, along with the burden of a criminal trial. Cho has been undergoing cancer treatment for over six years since being diagnosed in 2010. Last year, he was convicted in a first trial on tax evasion charges and sentenced to three years in prison and a fine of 136.5 billion won (US$113.1 million).

“The combination of the treatment and trial has made it virtually impossible for Chairman Cho to report to work normally, so the issue of handing off power began surfacing early last year,” explained a Hyosung source.

Kang Shin-ho is currently 90, making him the second oldest chaebol chairman after Lotte’s Shin Kyuk-ho, who is 95. Many within the group saw the succession coming after a generational change in the appointments of affiliate presidents late last year.

For now, the focus of business world attention is on which group is most likely to make the next succession decision. Chung Mong-koo, chairperson of second-ranked Hyundai Motor, was born in 1938 and will be turning 80 next year. While appearing as a witness last month at a National Assembly hearing on the Choi Sun-sil government interference scandal, he appeared at times to not fully understand questions from lawmakers. His only son, Chung Eui-sun, became president of Kia Motors in 2005 at the age of 47 and has been vice chairman of Hyundai Motor since 2009.

“Chung Mong-koo played a key role in helping Hyundai Motor become the world‘s fifth-ranked automobile company, but recently he hasn’t been the same physically or mentally,” said a former Hyundai Motor Group executive. “A lot of people think that may be part of the reason Hyundai Motor seems to be focused on maintaining the status quo amid its crisis situation rather than boldly attempting new changes.”

Solidarity for Economic Reform director Kim Sang-jo said the succession issue “isn’t just a family problem for the chaebol anymore now that they have grown to become global businesses.”

“They need to get away from the ’feudal dynasty‘ approach where the prince is only crowned after the king’s death, and implement a ‘CEO succession program’ that includes a management capability testing process to assess management vision and leadership before a successor takes over as CEO,” Kim advised.

“Otherwise, there‘s no way to ensure the third generation’s success or the company’s development. Those are the times we’re living in now.”

By Kwack Jung-soo, business correspondent

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