Samsung Chairman Lee Kun-hee Dies at 78 -- Update

By Elizabeth Koh and Jonathan Cheng

SEOUL--Samsung Chairman Lee Kun-hee, who transformed a second-tier electronics parts maker into the world's biggest manufacturer of smartphones and televisions, died Sunday after lying incapacitated in a hospital for more than half a decade. He was 78 years old.

Mr. Lee, who at the time of his death remained chairman of Samsung, had been hospitalized since May 2014 after a heart attack. He already had been in fragile health and was treated for lung cancer in the late 1990s.

During his more than three decades at the helm of Samsung, South Korea's biggest conglomerate in which Samsung Electronics Co. is the crown jewel, Mr. Lee transformed the company into a global brand beyond South Korea where it sells everything from life insurance to roller-coaster rides. By almost every measure, he exceeded expectations, pushing the company to the global No. 1 position in televisions, smartphones and memory chips.

Mr. Lee, whose father founded Samsung, became chairman in 1987. He sought to boost Samsung's brand through the Olympics, with the company becoming a top-tier sponsor and Mr. Lee serving as an International Olympic Committee member. In 2009, South Korea's president pardoned Mr. Lee, imploring him to help land the 2018 Winter Olympics for the country. It worked.

It wasn't Mr. Lee's first presidential pardon. He was convicted twice, in 1995 for bribing President Roh Tae-woo and then in 2008 for embezzlement and tax evasion. At the time, Mr. Lee said the payments in the earlier case were customary, not bribes, and he pleaded not guilty in the latter.

Even in absentia in his final years, Mr. Lee continued to define the company, especially as the conglomerate's attempts to pass dynastic control on to his only son, 52-year-old Vice Chairman Lee Jae-yong, sparked continuing legal cases into alleged bribery and financial fraud.

Lee Kun-hee's death will raise fresh questions about succession at Samsung. Mr. Lee is the company's largest individual shareholder, though transferring it to his son or two surviving daughters faces challenges due to South Korea's substantial inheritance tax--which governance experts estimate could be up to 60% for any shares passed to Lee Jae-yong.

Samsung, in a statement Sunday, didn't say who would replace Mr. Lee. His son, who was groomed for years as the likely successor, had assumed the role of the group's de facto leader in the years since his father's hospitalization.

"Chairman Lee was a true visionary who transformed Samsung into the world-leading innovator and industrial powerhouse from a local business, " the company said. "His legacy will be everlasting."

The company remains a technology giant world-wide, though Samsung Electronics is battling slowing momentum in mobile phones and is struggling to find new growth engines.

In Lee Kun-hee's final, full year of leadership in 2013, Samsung Electronics' annual operating profit had surged to 37 trillion Korean won, or about $35 billion--more than a 10-fold rise from 1997. By the time he fell ill in May 2014, the company's market capitalization ranked it among the world's most valuable technology companies.

In his annual speech to employees at the beginning of 2014, Mr. Lee called on the company to innovate by "dropping old habits" and by having research and development centers "work around the clock, non-stop," according to a statement provided by Samsung at the time. In one of his final public remarks, he said Samsung must "get rid of business models and strategies from five, 10 years ago and hardware-focused ways," an echo of his famous 1993 injunction: "Change everything except for your wife and children."

Long South Korea's wealthiest individual and most powerful businessman, Mr. Lee boasted an estimated net worth of $20.9 billion, according to Forbes calculations from October. Samsung has dozens of affiliates. The most profitable is Samsung Electronics, of which Mr. Lee is the largest individual shareholder, with a 4.18% stake.

Since Mr. Lee's stroke, Samsung has faced a string of scandals and business challenges. A controversial merger of two Samsung affiliates in 2015, which consolidated his son's ownership grip on the conglomerate, ended with a bribery conviction for Lee Jae-yong, becoming the first Samsung head to go to prison.

Lee Jae-yong, who has since been released from prison on a suspended sentence, still awaits a final ruling on the bribery case. The younger Mr. Lee is also the subject of a new, related legal case probing new allegations of financial fraud connected to the 2015 merger.

Samsung Electronics has also faced turbulence. Battery problems with its Galaxy Note 7 smartphones triggered a costly and embarrassing global recall in 2016. Profits and sales slumped as the chips market collapsed due to oversupply. But under Lee Jae-yong, the conglomerate has invested heavily in nurturing other lines of business, from 5G network equipment to biopharmaceuticals.

Lee Kun-hee's ascendance wasn't preordained. Born in 1942 as the third son in a family of eight children, his father, Lee Byung-chull, chose him to take the reins--breaking with Korean tradition that hands over the business to the eldest son--due to the younger Mr. Lee's obvious interest and skill in business management.

The decision to hand over Samsung to Mr. Lee rather than his older brother later triggered a bitter legal dispute over ownership of the conglomerate, which Mr. Lee won.

Mr. Lee graduated from Japan's elite Waseda University before studying business management at George Washington University in the U.S. capital.

In 1967, he married Hong Ra-hee, whose father was a senior figure at the powerful South Korean newspaper, the JoongAng Ilbo. Ms. Hong's father is believed to have had a great influence on the development of Mr. Lee's business skills. In an essay written by Mr. Lee and published in 1997, he cites his father-in-law as one of his two "greatest teachers." The other was his own father.

Mr. Lee took charge of the conglomerate in 1987 at the age of 45 after his father's death. By then, Samsung had grown from its roots in 1938 as a small fish and produce trading firm to include sugar refining, textiles, manufacturing and simple electronics such as radios and microwaves.

Mr. Lee pushed his growing staff--more than 230,000 employees by the end of 2013--to work harder. He cultivated a reputation for an unpredictable and sometimes stern management style. While he had chief executives running the company's day-to-day operations, orders given by Mr. Lee carried significant weight and had to be followed.

He had final say in key personnel decisions and would occasionally summon his management team at odd hours for "emergency meetings" to discuss why Samsung was falling behind rivals in certain product categories, according to Samsung employees and executives.

In one incident in April 2002, during a stretch of unusually poor air quality in Seoul, Mr. Lee abruptly called the Samsung executive in charge of the company's home appliances business to ask why Samsung didn't have any air purification products. Within a month, Samsung had an "air purification task force" that quickly produced an air cleaning device, according to a book published by the company in 2010.

Mr. Lee wasn't known as a man of many words, but when he had his mind set on something, he could talk for hours, according to books written about him by the company. In 1993, when Samsung was still known as an obscure maker of electronics components for Western brands, he lectured Samsung executives about the need to boost the quality of its products so that Samsung could evolve and become a competitive technology company in its own right.

In one of the most celebrated anecdotes, Mr. Lee ordered his staff in 1995 to set alight tens of thousands of Samsung wireless phones, fax machines and other devices that he complained were of poor quality.

However, Mr. Lee's relentless ambition to take Samsung to the top in virtually all product categories also landed him in trouble. In the 1990s, Samsung made an ill-fated entry into the automobile business. The products were poor, and after the business was ravaged by the Asian financial crisis in 1997 and 1998, Samsung was forced to sell the automobile unit to France's Renault SA in 2000.

Mr. Lee also was forced to step down from his chairmanship in 2008 after being convicted in a tax-fraud scandal. He was later pardoned by South Korea's then-president, Lee Myung-bak, in the

hopes that, as a member of the IOC, he would return the favor by helping the country win its bid to host the 2018 Winter Olympics. The bid was successful, and Mr. Lee was restored to his chairman position in 2010.

He remained in his IOC role until 2017 when he resigned.

Mr. Lee is survived by his 75-year-old wife Ms. Hong , his son and two daughters, Lee Boo-Jin and Lee Seo-hyun.

Write to Elizabeth Koh at [e-mail] and Jonathan Cheng at [e-mail]

(END) Dow Jones Newswires

10-25-20 0037ET