Galaxy Note 7 Debacle Raises Questions Over Samsung Leadership Style

gettyimages-498334311-compressorSamsung is what’s known in South Korea as a “chaebol”—large family-run conglomerates with opaque corporate structures and a small cabal of authoritarian managers. Along with other chaebol such as Hyundai, Samsung has been credited with the country’s rapid economic growth since the end of the Korean war in 1953.

However, these companies, which have become intimidatingly large, don’t appear to be very good at handling criticism, or crises.

Seoul-based corporate governance monitoring group Solidarity for Economic Reform, or SEC, has just told Agence France-Press that engineers at Samsung would typically have silently followed orders, despite any misgivings they may have had about the phone’s functionality.

The company today downgraded its quarterly profit guidance by 2.6 trillion won ($2.3 billion) after this week deciding to kill off production of the Note 7 smartphone, which, in some instances, was found to catch fire due to an overheating battery.

“There was no channel for engineers to tell management they needed more time to test the battery and later prepare a new battery for the recall. And this lack of feedback was the biggest culprit behind this disaster.”

Samsung had already recalled 2.5 million of the devices in early September, at which point it blamed the battery supplier for the fault. It subsequently issued replacement devices, with different batteries, but they started catching fire, too.

“There was no channel for engineers to tell management they needed more time to test the battery and later prepare a new battery for the recall,” Kim Sang-Jo, the head of SEC, told AFP. “And this lack of feedback was the biggest culprit behind this disaster.”

Samsung is also facing accusations that it rushed the launch of the Note 7 to get a market lead over Apple’s iPhone 7. Its handling of the phone exchange process also has been heavily criticized.

As noted by The New York Times, the message Samsung issued to customers on Tuesday warning them to switch off their phone and get a replacement was buried in the company’s website and wasn’t posted on social media.

Samsung is currently being run by Lee Jae-yong, the son and heir apparent to Chairman Lee Kun-hee, who suffered a heart attack in 2014. Under South Korean cultural norms, the younger Lee can’t assume the top title while his father remains alive.

To date, no executives from the company have appeared publicly to address the Note 7 recall, which some American business leaders have warned could get worse.

“I think it’s a very serious problem—it may be even more serious than people have reflected in the market,” former Apple CEO John Sculley told CNBC.

Ross Kelly
Ross Kelly is a London-based business journalist. He has been a staff correspondent or editor at The Wall Street Journal, Yahoo Finance and the Australian Associated Press.

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