Can South Korean Companies Loosen Up Their Leadership

Old Habits Die Hard: Can South Korean Companies Loosen Up Their Leadership?taipan.pae-gippalli-ppalli

Many Western companies want leaders who encourage ideas, innovation, and speedy decision-making. But leadership in Asia conjures up words like order, paternalism, and formality. That certainly describes the leadership approach in many large Korean companies over the past 50 years. Over this half-century of great economic success, the power to make key decisions was concentrated at the top of rigidly bureaucratic corporate structures. And these structures were themselves tied to larger interrelated and co-owned conglomerates—the Korean chaebol system. These massive industrial groups are often run by rich, inscrutable families who live much like royalty in South Korea. For example, the Lee family is the head of Samsung Electronics—a group whose products account for nearly 20% of the country’s gross domestic product. Other major company groups include Hyundai and Lucky Goldstar (LG).

These massive firms, and the hierarchical and closed leadership style they employ, seem ideally suited for Korean culture. From them flowed a traditional approach to leadership based on Confucian values that emphasize family, seniority, and loyalty. This is supported by South Korea’s standing on some of the value dimensions discussed in earlier chapters. For example, South Korea scores very high on uncertainty avoidance. South Koreans work to create a society that reduces uncertainty and increases control and predictability—the chaebol structure follows directly from this. Far-flung chaebol interests are held together by the family autocrat or This person provides a focus for power and decision making that coordinates activity. According to some experts, the taipan are determined and aggressive in overcoming obstacles ( in Korean). And, above all, a strong work ethic is supported by its famously in-a-hurry population. Apparently, the words (“fast fast”) are sometimes the first words learned by foreigners upon arrival in the country.

This authoritarian nature allows South Korean firms to move decisively and quickly. But it also stifles creativity and creates problems. At each level of management, subordinates are often prohibited from questioning their superiors, much less allowed to communicate with other executives further up the line. Some experts think this approach stunted growth, putting many Korean companies in danger of falling behind foreign competitors and producing failure. In the Asian financial crisis of the late 1990s, the chaebol was widely blamed by the public for the crisis, and they failed in droves. After Daewoo collapsed in 2000, more than half of the other 30 conglomerates followed in bankruptcy. Massive corruption schemes came to light, many involving the highest government officials and the chaebols. Lee Kun-Hee, chairman of Samsung Electronics, was himself convicted of tax evasion. Like many other corporate leaders, however, he evaded prison time by paying massive fines (over $1 billion alone for Chung Mong-koo, chairman of Hyundai, who was convicted of bribery and embezzlement). The paternalistic and authoritarian leader style promoted by this clan or family system clearly produced a top-down decision system in these Korean firms and, some belief, a potential liability going forward for Korean firms.

In a break from tradition, and in a country where rigid hierarchies are blamed for inefficiencies and reductions in innovation, SK Telecom tried an end run. SKT introduced a new system to reduce this hierarchy problem, including having workers and managers address themselves with one classification (in English)—Manager. The idea was this would help break down stodgy barriers and encourage more creativity and innovation. This may not seem like a big deal to a lot of Westerners, but in a culture where employees take orders from superiors/seniors without question and it’s tough to propose ideas upward, this was a big deal. Some other big companies, like SKT rival KT (Korean Telecom), tried to follow suit and jettisoned the traditional 5-rank system still prevalent in a lot of South Korean firms. But, this didn’t last long and just recently this approach was dumped, in part justified because internal surveys showed that an “overwhelming majority of employees favored a return” to the traditional hierarchy which was better suited for them and which “helped boost workers’ morale and pride at work.”

So what are Korean firms do in today’s environment? In late 2010, the Wall Street Journal raised key questions for the country. The special report, called “The Miracle Is Over: Now What?” gave ample credit to the successful country-level business strategy that brought South Korea into the upper echelon of world economies. But the report was also critical of current leadership and advocated a tough and important self-examination, including leader style and succession (often passed to family members in Korean firms), even as it praised the many successes that have made Samsung, LG, and SKT global giants.

Assignment Questions:

1. Do you think a new approach to leadership is necessary for the new South Korea? Or should Koreans stick to the traditional approach that brought them to where they are? Note that Lee Kun-Hee of Samsung (see above) resigned as CEO in 2008 after a massive slush fund scandal at Samsung. He returned in 2010 from disgrace to again lead the firm and is still leading it at the time of writing this publication. And he’s clear about the issue: “We’re in a crisis now. No one knows what will become of Samsung. Most of our products will be obsolete in ten years. We must begin anew.” Way back in 1992, Mr. Lee used the same rhetoric as a harbinger of his traditional style (“Samsung is a second class company … employees should change everything but their wife and children”). Samsung has taken sides on this issue, with a clear preference for the traditional leader-emanating style. What’s your view?

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