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From founders to professional managers
This document summarizes and compares the governing structures of Sony and Samsung. It describes Sony's transition from founder-led management to a more Western-style structure with professional managers and boards, which created issues with succession, internal politics, and applicability. Samsung has a powerful owner-centered structure under Chairman Lee, which allows quick decisions but risks from one-man decision making and sustainability concerns with family control. Both companies faced challenges transitioning to leadership from professional managers rather than founders.
From founders to professional managers
- 1. From founders to professionalmanagers Created by Binh Truong Study on Corporate Governance Structure of SONY and SAMSUNG
- 2. Agenda • Case studies •Sony's CEO and Governing Structure • Problems with Sony's Governing Structure • Samsung's Powerful Owner-Centered Structure • The Problems with Samsung's Governing Structure • Conclusion
- 3. Current case studies •Samsung: Chairman Lee > Office of Secretaries > Affiliates leaders • Sony: CEO for each its individual business units (companies). But not from inside out.
- 4. Sony's CEO andGoverning Structure (1) • Founders and the Inner Circle – 1st generation, Founders era: Ibuka, Morita are God- like figures (and no one dare to against them). – Ibuka & Moria: formed inner circle (based on their personal relationships). – 2nd generation: Ohga, continued decision-making pattern of Ibuka, Morita. (Ibuka: Trinitron TV, Morita: Walkman, Ohga: PlayStation). • => Autocratic management style – Loyalty & commitment were expected for inner circle members.
- 5. Sony's CEO andGoverning Structure (2) • Idei and Board Reform (Chairman Idei) – Implemented new form: • Individuals business units had more autonomy. • Manage with new structure: executive power, and supervisory rights. – Sony Group's board divided: 10 executive officers, 3 outside directors. – In 2003, Sony implemented: outside director system, and committees (Nomination, Audit, Compensation committee...). – By 2003 time, Sony has > 50% outside directors
- 6. Problems with Sony'sGoverning Structure (1) • Succession and Leadership – Former executives were angry, unfriendly with new governing structure (because LOST POWER). – Lacked supports from analog era's engineers (from electronics sector). – Previous analog technologies engineers PASSIVELY RESISTED digital technologies. – Easily FALL into chaos IF LEADERSHIP NOT STRONG ENOUGH. – Inconsistency between leadership and corporate culture. – Professional manager were taking reins from founders, owners.
- 7. Problems with Sony'sGoverning Structure (2) • Internal Politics – "Creative destruction": The appear of Kutaragi, close the PTC, NACS => Destroyed Idei's network strategies. – Kutaragi, Ohga criticized both Idei, Ando for missing transition time. – March 7, 2005: Idei, Ando resigned (6 internal board members followed). => pulled down Kutaragi. – New leaders: Howard Stringer (chairman), Chubachi (president), Ihara (vice-president, CFO). (3 guys were appointed by Idei). – Chubachi form Sony the way systematic, NOT CHARISMATIC.
- 8. Problems with Sony'sGoverning Structure (3) • Applicability of a Western-Style Governance Structure – Using outside directors can prevent CEO from making wrong decision. BUT may effect to corporation by short-term profitability. – Difficult to share interdivisional issue with other divisional heads. – Make confusion when add CEO, COO title (Western style). – Middle managers confused whether to listen to. (CEO/COO/President?? Mostly they listen to CEO).
- 9. Problems with Sony'sGoverning Structure (4) • Conclusion: Sony's adoption of a Western governance structure: – Take more costs than benefits. – Can't globalize Sony's system as it was supposed to. – Sony's management and EMPLOYEES were STILL FUNDAMENTALLY JAPANESE.
- 10. Samsung's Powerful Owner-CenteredStructure • Emperor Management – Power authority held by chairman. – Benefits / Advantages: • Make decision quickly. • Take full responsibilities for its strategies. • Making a turning point to become the market leader. • Fit with High-risk and High-return industry . – Examples of benefits • Invested in 8-inch wafer. • Decided to develop LCD technology, PlayStation.
- 11. The Problems withSamsung's Governing Structure (1) • One-Man Decision-Making Structure – Powerful owner-centered system: Chairman Lee > Group's Office of Secretaries > Inner Circle => it makes "wise emperor", and problems such as: • Uncertainty of leadership (no guarantee that such leadership will be sustained). • Wise emperor PERSONALLY makes MISTAKEs. • Fired some executives who has concern about emperor decision. • Under "emperor management" system, the leader makes both inspired & disastrous decisions.
- 12. The Problems withSamsung's Governing Structure (2) • One-Man Decision-Making Structure (cont.) – the URGENT TASKS for Samsung Electronic (or Samsung Groups) are HOW TO: • Assist the leader's decision making. • Present diverse opinions. • Reduce the risk of wrong decisions.
- 13. The Problems withSamsung's Governing Structure (3) • Sustainability of Family Control – Kun-hee Lee • Byung-chull Lee > Kun-hee Lee > Jae-yong Lee (Lee's family own <= 4% all Samsung Group's shares). • Kun-hee Lee (and his family members) hold ~22% shares of Samsung affiliates. • Lee’s family use CROSS-SHAREHOLDING method to control, inherit between father-and-son, to hold largest shares of Samsung. • Chairman Lee's family major shareholder: Samsung Everland (private owned firm) > owns Samsung Life (unlisted firm) > owns large shares Samsung Electronics. – Taking owner of private firms, unlisted firms... will keep Lee's family maintain power and control at Samsung Groups.
- 14. The Problems withSamsung's Governing Structure (4) • Sustainability of Family Control (cont.) – Jea-yong Lee • Inherited 6 billion won (cash) from Kun-hee Lee => 4.4 billion won after tax. • Purchase stocks of UNLISTED AFFILIATES in Samsung Groups (ex: S-one). • Purchase CONVERTIBLE BONDS to take controls affiliates of Samsung groups (continue CROSS-SHAREHOLDING method) • Samsung Electronic also support other affiliates (Samsung Card) under investment (no matter what objection from foreign share-holders). – This kind of activities make CROSS-SHAREHOLDING of Samsung Groups more complicated.
- 15. The Inner Circlewithin Samsung • OFFICE OF SECRETARIES: – TRAIN talent people, then send them to affiliates, in KEY POSITIONs. – Quality for selection: LOYALTY with Group Chairman. (trust-base relation). – They have INFORMATION (promotion, leadership training, KPI...) among themselves. • GROUP OF ENGINEERS – They maintain Samsung Electronics technical expertise. • Mostly, employees from the 2 groups above are PROMTED to be a MANAGER (NOT Professional Manager)
- 16. Leadership of ProfessionalManagers Issues • Lack of leadership by professional managers. • Chairman Lee makes ALL important DECISIONs. • CEOs of Samsung affiliates OPERATING decisions UNDER parameters set by "Office of Secretaries". • => All executives compete against ONE another rather than CORPORATE.
- 17. Conclusion • Solution forSamsung? LOOK at Sony experiences, lessons learnt, they DID THE TRANSITION from "Founder Generation -> to Professional Managers". • BUT Samsung needs to prepare to avoid confusions, interest conflict, culture differences.
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