Even for the de facto head of one of the world’s largest family-controlled business empires, Jay Y. Lee, vice chairman of Samsung Electronics SSNLF -3.06% , has had a lot on his plate lately. On the same Thursday morning in early June that he breakfasted in Seoul with J.P. Morgan JPM 1.23% CEO Jamie Dimon, for instance, Lee learned that the $26 billion New York hedge fund Elliott Management had launched a surprise attack against him. Elliott wanted to stop Lee from merging two publicly traded pieces of his family’s network of companies, potentially foiling Lee’s plan to consolidate control.
A few weeks later, on the day he turned 47, Lee gave his first-ever nationally televised speech in South Korea to offer an apology—including a symbolic bow—because the Samsung Medical Center in Seoul had failed to contain an outbreak of the deadly Middle East respiratory syndrome virus known as MERS. Not long after, the scion of the family that runs Korea’s mightiest conglomerate led a team of executives on a fact-finding mission to Silicon Valley. An avid golfer, Lee found time to pop down to Pebble Beach for a members-and-guests-only tournament at the exclusive Cypress Point Golf Course with his pal and host Jerry Yang, the Yahoo YHOO 1.31% co-founder. Days later, after returning to Korea, he jetted back to the U.S. to hobnob with other global tech leaders at the annual Allen & Co. gathering in Sun Valley, Idaho. In mid-July, Lee found out that he had prevailed in his heated six-week battle with Elliott, and that shareholders had voted to approve the merger.
A veritable prince of the realm in Korea and supremely well connected among the global elite, Lee, who has a net worth of around $8 billion, nevertheless is not widely known outside his native land. At home, Lee’s life as a single dad and the next-generation leader of Samsung makes him a boldface name. Even in Korea, however, it isn’t well understood exactly what he does. That’s partly because he has long been overshadowed by his larger-than-life father, Lee Kun-hee, chairman of the Samsung Group.
The younger Lee’s profile is about to grow dramatically. In recent months he has made himself more visible, implicitly acknowledging that he is now the leader of the Lee clan and its business interests. The elder Lee, age 73 and Samsung’s chief for nearly 30 years, suffered a heart attack 14 months ago. He has been hospitalized ever since—at the same Samsung-owned facility where the MERS crisis began—and his condition is believed to be so grave that he cannot communicate and isn’t expected to recover. In other words, the man who built Samsung into a global powerhouse in everything from semiconductors to TVs to mobile phones has all but left the scene. And he has been succeeded—in actions, if not yet in title—by his relatively untested only son.
South Korea - Samsung Electronics Vice Chairman Lee Jae-Yong
Jay Y. Lee, Samsung’s debonair, globe-trotting heir apparent, is determined to transform the world’s biggest technology company into its most innovative. Can he dethrone Apple?
Photo illustration by Anthony Verducci. Based on photo by Lee Young Ho/SIPA—AP
So just who is Lee Jae-yong, known to his Western friends as Jay Y. Lee? Simply speaking, he is everything Samsung wants to be—but isn’t yet. One of three vice chairmen of Samsung Electronics, the conglomerate’s largest company, Lee runs no single business yet holds great sway over all of them. (He has two younger sisters who run businesses within the group; a third sister committed suicide in 2005.) He is the most international Samsung executive—he speaks fluent Japanese and English, and travels widely—yet is thoroughly a product of his Korean heritage. Just as Lee glides between Asian and Western worlds, his goal is to move Samsung beyond its Korean roots without losing the attributes that led to its success.
The generational transition comes at a critical time for Samsung. Its cash-gushing smartphone business is tops in the world by market share but has recently found itself squeezed by the vastly more profitable Apple on the high end and a bevy of price-slashing Chinese competitors below. As well, membership in the privileged club of Korean conglomerates, known (in both singular and plural) as chaebol, isn’t quite what it used to be, what with a new era of shareholder activism and public revulsion at the behavior of elites.
Lee doesn’t grant on-the-record interviews to the media, and he and Samsung’s top executives are exceedingly sensitive about upstaging the ailing patriarch, in keeping with the Confucian tradition of respect for elders. At the same time, Samsung is a notably image-conscious company, and it is well aware of the intensifying scrutiny of its all-but-anointed leader. With that in mind, Samsung recently gave Fortune unusually deep access to various corners of its domain. The company also made available the CEOs of two key companies in the Samsung Group. Both executives spoke openly about Jay Y. Lee’s leadership and the challenges he faces.
Among Lee’s priorities, these executives and others say, are to simplify a dizzyingly complex corporate structure, to prod Samsung’s leadership to be creative as well as relentless, and to globalize what has stubbornly remained an essentially Korean company that just happens to sell products around the world. Lee and his coterie of powerful executives know there will be plenty of resistance to these changes. After all, Samsung has successfully employed its traditional “me-too” approach for decades—jumping into new lines of business and out-executing the competition until it becomes the market leader. In the process Samsung has grown into one of the world’s biggest and richest corporate kingdoms. With $195.8 billion in revenue last year, Samsung Electronics ranks No. 13 on this year’s Global 500—the largest tech company on the list and two spots ahead of Apple AAPL 3.38% . Construction and trading business Samsung C&T (No. 441) and Samsung Life Insurance (No. 456) are also ranked in the Global 500. Together, the Samsung Group has more than $320 billion in sales from dozens of separate companies.
But the fear inside Samsung’s executive suite is that its success, especially in the realm of technology, could be fleeting. Leadership in tech markets tends not to last, as Samsung’s recent dip in smartphones shows. A sense of healthy paranoia pervades Samsung that an insular mentality and a reliance on commodity products won’t serve it as well in the future as they have in the past. Samsung executives frequently reference the downfall of once-powerful Japanese electronics rivals such as Sony and Sharp.
2015 Samsung Home Entertainment Showcase
Curved, ultra-high definition Samsung TV’s on display in New York City in April 2015. Samsung is the No. 1 manufacturer of TV’s globally, ahead of Korean rival LG.
Photograph by Diane Bondareff—AP
To avoid such a fate, Samsung today is hyperfocused on innovation—with an emphasis on game-changing advances. The company has long pushed the envelope in everything from semiconductors to smartphones to televisions. For example, its smartphone chips are considered superior to Intel’s INTC 2.53% . What it has not achieved is the creation of new industries, à la Apple. To increase the chances of a major breakthrough, Samsung Electronics spent nearly $14 billion on research and development last year—or easily more than twice the $6 billion that Apple devoted to R&D in 2014.
Money alone won’t achieve what Lee wants, however. To keep Samsung growing and to challenge Apple in the eyes of customers, Lee and his key advisers believe, the company must be willing to embrace both new ideas and new leaders from outside Korea. “The biggest challenge that we have is that there are a lot of people still, the old-timers of Samsung, who don’t really understand what ‘global’ means,” says Choi Chi-hun, CEO of Samsung C&T. “Jay is a very global person. He understands this.” Understanding is one thing, of course. Changing an organization with nearly half-a-million employees is another thing altogether.
The Power and the Glory
At the beginning of 2015 a group of senior executives in Samsung Electronics’ TV manufacturing division, which is No. 1 in market share with more than 20% of global sales, held a meeting attended by Jay Y. Lee. The vice chairman, as he is typically referred to by Samsung’s more formal officials, made some mildly critical comments about the division’s marketing efforts, according to a version of the meeting that has made the rounds of Samsung’s top managers. Thirty-year veteran Park Gwang-gi, an executive vice president and the unit’s head of strategic marketing, was said to be so rattled by Lee’s criticism that he immediately resigned his position.
The anecdote is notable because it helps illustrate the power that Samsung’s founding family wields despite the complicated chain of ownership and command inside the conglomerate. For starters, operating authority resides in individual business units, not headquarters. What’s more, the Lee family holds a relatively small stake in Samsung Electronics and even smaller positions in other Samsung affiliates. Further confusing things, it can be a challenge to define just what Samsung is—or isn’t. Consider a disclaimer Samsung posts on a corporate website: “Each company within the Samsung Group is an independent legal entity. Samsung Group is not a legal entity. Samsung Group is a term to conveniently refer to a group of companies that are tied together by their corporate history.”
That corporate history dates back some eight decades, to when Jay Y. Lee’s grandfather, Lee Byung-chul, started a food trading business in 1938. Today the chaebol comprises 67 distinct businesses whose product lines range from apparel and amusement parks to shipbuilding, washing machines, and financial services. Because of its market-leadin