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Samsung Chief's Triumph Turns to Travail
Amid Latest Scandal to Rock Conglomerate
Samsung Chairman Lee Kun-Hee

Lee Kun-hee, chairman of Samsung Electronics, has been no stranger to scandal as head of South Korea's largest company and the huge conglomerate it anchors.
And he has emerged each time, even from a bribery conviction, relatively unscathed.
But new allegations — chiefly, that the conglomerate maintained a $215 million slush fund used to pay off influential figures — have the 65-year-old tycoon up against a wall instead of celebrating two decades of corporate success.

In addition to an investigation by prosecutors, who carried out raids Friday at offices of two Samsung affiliates, an independent counsel approved by President Roh Moo-hyun under pressure from lawmakers is set to probe the Samsung Group, which spans about 60 businesses.

Such turmoil inevitably focuses attention on Lee, whose leadership has made Samsung Electronics a top global company. But it also raises questions about the continued power of the family-run conglomerates, called chaebol, that have led South Korea's growth the last half-century.

Samsung is perceived to play such a pivotal role in the domestic economy and to have such social and even political influence that South Koreans sometimes call their country the "Republic of Samsung."

Samsung has vociferously denied the allegations, aired last month by a former legal officer for the conglomerate, that it used questionable accounting practices to create the slush fund to bribe prosecutors, judges and lawmakers to win influence.

Kim Yong-chul, once Samsung's top lawyer and previously a prosecutor, also claimed Lee's wife purchased "Happy Tears," a painting by the late pop artist Roy Lichtenstein, with slush fund money — a claim Samsung also denied.

The investigations are expected to take months. When asked if Lee had any public comment about Kim's allegations, a Samsung spokesman said the chairman himself had made no statements and referred to the group's written denials.

Lee took over Samsung 20 years ago Saturday — on Dec. 1, 1987 — after the death of his father, the conglomerate's founder. In those days, it was mostly known for mass-producing cheap electronics: Quantity and low prices trumped quality and design.

Fed up, Lee summoned top executives to a meeting in 1993 and called for a transformation.

"Change everything but your wife and kids," he exhorted them.

Lee is credited with almost single-handedly turning Samsung Electronics Co. into a tech powerhouse.

"Making and selling faulty products is like producing and spreading poison," he wrote in 1994.

Now, Samsung leads the world in sales of sleek flat-screen TVs, among other products. This year it displaced Motorola Inc. as the No. 2 seller of mobile phones.

Experts attribute much of that success to Lee's strategic vision and grasp of technology and to a South Korean business culture in which powerful executives are particularly influential.

Books on Lee, who spent part of his childhood in Japan, describe him as a loner. As a youth he liked to take products apart, analyze their components and put them back together.

He graduated from Tokyo's elite Waseda University and then received an MBA from George Washington University in Washington, D.C.

"He has been very aggressive, going ahead of the market, in product development, in technology development and also I think human resources management," said Jang Ha-sung, dean of Korea University's business school.

Lee's business resume has at least one blemish. A foray into the auto industry with Samsung Motors in the 1990s ended with the venture being sold to Renault SA of France.

Samsung and the half dozen or so other major chaebol in South Korea are credited with helping propel the country's economy, struggling five decades ago, to an industrial showcase today. But their opaque ownership structure, in which a wealthy family traditionally exerts control via a complex web of cross-shareholdings, is seen as a hotbed of corruption.

Kim Joongi, a professor of law at Seoul's Yonsei University, said Samsung Electronics will continue to do well and noted an overall trend toward more openness among chaebol. But he said questions remain about how they're run.

"If you have one person absolutely controlling an entity then abuses of power will inevitably occur," said Kim.

Both Kim and Korea University's Jang have pushed for improvements in governance at Samsung and other conglomerates.

Lee, a former amateur wrestler and now a member of the International Olympic Committee, was convicted in 1996 with other chaebol leaders for bribing Roh Tae-woo, an ex-general who served as South Korean president from 1988-1993. Lee's prison sentence was suspended so he avoided jail.

In 2005, Lee, a senior Samsung executive and a former newspaper publisher were investigated over suspicions they colluded to embezzle money for bribes and for donations to candidates in the 1997 presidential election. But prosecutors concluded there was insufficient evidence for embezzlement and the statute of limitations on bribery had expired.

That probe highlighted the often complex family ties among South Korea's business and political elite. Hong Seok-hyun, the former newspaper publisher, is Lee's brother-in-law. He stepped down from his position as South Korea's ambassador to the U.S. during the scandal.

Some say traditional fears that major change at Samsung would harm South Korea mean Lee will probably be safe, no matter what the outcome of the probes.

"Thanks to public concern that Samsung must not be shaken, the group will escape the worst," Yang Sang-hoon, a member of the editorial board at the Chosun Ilbo newspaper, wrote last week. (Associated Press writers Hyung-jin Kim and Jae-yeon Lim in Seoul)

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