What gives the Samsung Republic such a powerful force

According to a 2012 survey, Samsung has more than 420,000 employees, sales of 268.6 billion U.S. dollars, accounting for 24% of South Korea's GDP in the same year, according to the Washington Post, its 2012 exports of 156.7 billion U.S. dollars, accounting for South Korea's total export volume of 28.2%. At the end of 2012, Samsung's total assets were $162.9 billion trillion, with a market capitalisation of $227.3 billion, accounting for 18% of the country's total market capitalisation, according to Bloomberg. Samsung undoubtedly has a huge impact on South Korea.

The Samsung Group is widely involved in different industries to help the family diversify investment become less important, so as the built-in family office of the Samsung Group Secretary room, the main function is to assist the Lee family management of the huge Samsung group. It originates from the enterprise and is higher than the enterprise, not only strengthens the family to the enterprise's control, but also handles the family inheritance and so on affairs. However, due to the mastery of power, unclear positioning, conflicts of interest, its operation also highlighted many abuses.

Samsung's shadow is everywhere, and its subsidiaries operate in various fields, whether electronic, mechanical, chemical, military or textile, financial, Service (table 1). Samsung's TVs and smartphones are in the market's lead. Since 2006, Samsung has maintained the status of the world's largest TV producer and surpassed Apple in 2011 years to become the world's largest smartphone maker. Samsung smartphone shipments accounted for 35.2% of the world in the third quarter of 2013, compared with 13.4% per cent for Apple, according to Strategy Analytics.

Samsung Electronics is the flagship of Samsung Group, its 236,000 employees in 2012, sales of 187.8 billion U.S. dollars, accounting for 70% of the group's sales, net profit of 20.6 billion dollars. Samsung was ranked 14th in the world's top 500 in 2013 (20th in 2012), and Samsung Life Insurance was ranked No. 427. Samsung also has joint ventures with French Renault, Japan's Toshiba and Sony. Samsung ranked eighth in the rankings of the world's best brands in 2013, with a value of 39.61 billion Interbrand.

The family business was founded by Li Bing in 1938, the current president is the founder of the three sons of Lee Kun-hee, its 2013 to 13 billion U.S. dollars in net assets ranked Forbes Global Rich List 69th, and long-term occupy South Korea's richest position. With the implementation of the third generation succession plan, Lee Kun-hee's only son Lee as the successor of Samsung, has quietly become South Korea's third richest.

In the more than 70-year development of Samsung Group, the Li clan and the wind and rain together, and common growth. The accessibility of the OFFICE,FO, the name of the family office, and the secretary room of the Samsung Group, which is the real one, have played a decisive role in the centralization and family management of the group. The secretarial office serves as the butler of the Lee family, helping the family to gather power, centralize the management of subsidiaries around the world, and coordinate the interests of businesses and families.

The historical origins of Lee Kun-Hee's secretary room

The concept of the secretarial office originates from the Japanese Army Staff organization during World War Ii. After the war, the former Kanto Army Headquarters director staff and Headquarters Navy staff Lai Island Longsan as Itochu loyalty business president, will this organization into Itochu, mainly responsible for business intelligence collection, organization staff and so on, so that in Japan's trading houses sparked the trend of setting up a secretary room. Li Bing, influenced by Japan, brought the trend to Korea.

Li Bing in 1938, the predecessor of Samsung Group-Samsung Chamber of Commerce, mainly for the export of fruits and dried fish (table 2). After World War II, the Korean government invited Lai Island Dragon Three for its development suggestions. Lai Island Dragon Three explained the importance of the trading firm, suggested South Korea to pull the export. South Korea thus vigorously advocated "comprehensive business model", the merger of some trading companies into a large comprehensive trading company, Samsung also established in 1951 Samsung Moolsan (now Samsung property)-it was designated as the government "comprehensive trading Company No. 1th", to become the pioneer and model of Korea's comprehensive trade. In the 1959, Samsung's secretarial room was also set up under the leadership of Li Bing three and the dragon. At first, the secretarial room was a "lesson" under Samsung Property (equivalent to the KE department in China), with only 20 people helping the president with day-to-day affairs.

In the 1960s, Samsung carried out a large number of mergers and acquisitions, respectively, the acquisition of Oriental Life insurance (after the Samsung Life Insurance), East Flower department store, the World Han paper and other institutions, and in 1969 set up Samsung Electronics and Samsung Motor. In the 70 's, Samsung began to diversify, focusing on investment in heavy industries, chemical and other fields, respectively, the establishment of Samsung heavy industry, Samsung Petrochemical, Samsung Precision Chemical, Samsung Shipbuilding and other subsidiaries, Samsung Semiconductor and Samsung Electronics has also begun to exert its power to export the global, pioneering international strategy. At this time Samsung has developed into a diversified multinational business.

In Samsung's management, Li Bing all the day-to-day affairs to subordinates, and only make strategic decisions. At the same time, as a diversified company, Samsung subsidiaries around the world, and the implementation of independent operating system, requires a strong staff organization as the internal Coordinator, the collection of information to make plans and adjustments. As a result, Li Bing The secretarial experience of Japan's chaebol, such as Mitsubishi, Mitsui and Sumitomo, and in 1972 strengthened the secretarial function, enabling it to carry out ancillary functions such as intelligence collection and analysis, planning, day-to-day affairs Management (table 3).

By the end of the the 1970s, Samsung's secretarial functions continued to be enhanced, and the company was responsible for day-to-day operations, finance, planning, technology, security, marketing, personnel, investigation, supervision, finance, international finance and other matters. Among them, the investigation team is responsible for collecting business information and local intelligence; Planning team is responsible for the day-to-day operation of the enterprise, Operation and Finance Group, responsible for HR policy and employee benefits; The supervision Group is responsible for supervising the operation of the branch, the International Finance Group is responsible for financing and foreign exchange, and the operations team is responsible for overseeing the operation of the subsidiaries, Proposed Improvement Programme (table 3). In the 80 's, the Samsung secretarial office in the Golden Age became the most powerful intelligence analysis organization in Korea.

Lee Kun-hee took over Samsung Group in 1987, began the transformation of the Secretary room. He thinks his power is too concentrated, hope to disperse the right of management to subordinate company: "In the past, the old President Master 80% Management rights, secretary Room accounted for 10%, each subordinate company's president accounted for 10%." But in the future to be president of 20%, the secretary room accounted for 40%, the president accounted for 40% of the way. In 1998, the staffing, financial, planning, secretarial and operational units of the Secretariat were reduced to 100, from 15 teams in their heyday to 10 teams. 1999, Lee Kun-hee abolished the secretary room, set up structural adjustment headquarters, but its role and status has not changed.

The personnel section of the structural Adjustment department is responsible for human resources policy, staff training, education and labour coordination, with the largest number of persons in charge of labor coordination. The Finance Group is responsible for electronic operation, financial operation, non-electronic non-financial, financial management. The Monitoring Team is responsible for the company's monitoring and operating diagnostics. Planning PR Group is divided into planning team and PR group, Planning team is responsible for all Samsung staff to provide information, all information must be written to report the planning team, and then to discuss; The legal unit is responsible for the group's Legal Affairs (table 3). The Finance group is not only responsible for the investment decisions of the entire Samsung Group, but also for the group's cadre attendance and evaluation, in addition to the structural adjustment of the Department's business (such as labor coordination, monitoring business, etc.), business operations and profits and other intelligence is also concentrated in the financial group. Therefore, the control of the appointment and removal of money and power of the financial Group, the actual Samsung Group is the most powerful departments.

The structural adjustment Department was again weakened in 2006, staff cut to 100 below, renamed "Strategic Planning Room", stripped of the secretary, operation and other functions, the Secretary of the group into the president directly, the Legal group was transferred to the President of the Agreement, but still retain the personnel, financial control (table 3).

It is worth mentioning that the Secretariat or structural adjustment department is not a corporate body, neither a group subsidiary nor a business unit. In terms of organizational structure, the next groups are subordinate to the group's subsidiaries, which are funded by subsidiaries, but in actual power, Samsung's highest authority.

Mr Lee had positioned the secretary's office: "A house in charge, a subsidiary of the Treasury" means that the secretarial office controls the hiring and removal of power, and the subsidiaries control the financial and investment decisions. The personnel and payroll decisions of all Samsung subsidiaries are decided by the secretariat, and the staff files of all ministerial staff are established by the Secretariat alone. As a result, secretarial staff are often entertained by the general manager of their subsidiaries. In front of the Secretary room, Samsung Star Enterprise also has no resistance, Samsung Electronics former CEO Yun Jongrong has been cut. In fact, Samsung's power and wealth are controlled by the secretary's office, the salary of secretarial staff is also the highest in the group, structural adjustment This part of the appointment and dismissal of the department is usually inlaid with a piece of gold, for example, the Ministry of the former legal Officer Kim Yong during the promotion of a piece of 75 grams of solid gold, to highlight the status of his heyday.

Although the name of the secretary's office has undergone many changes, Samsung still uses the term "room" in the interior and often compares the "room" with that of the South Korean President's secretariat. In the organization sequence of the Samsung Group, the "room" is the symbol of honor and power. and whether to call the Secretary room, structural adjustment department or strategic planning room, it is the core of the triangular management system of Samsung Group: the long-term development strategy of the President layout; Room "design scheme, allocate resources and adjust business;

Why Samsung set up built-in family office

The author, Gao Hao and Liu Zhengxing, once defined the family office as a body that comprehensively manages and governs a complete balance sheet for the super high net worth family. In practice, European and American families tend to separate corporate assets from family wealth by diversifying their investments to reduce the risk of excessive concentration of assets, for example, the Dell family office MSD Capital was not associated with the company prior to the privatization of Dell, and family business governance did not fall within the purview of fo. The Samsung family, however, is doing the opposite, setting up departments within the family business to help govern businesses and families.

With the tendency of American enterprises to separate ownership and management, South Korea's chaebol tend to have the right to operate by family members, and to ensure the continuity of the enterprise with the model of family succession. In addition, because Samsung has been widely involved in different industries, to help family diversification of investment has become less important, therefore, its secretarial office from the enterprise, but also higher than the enterprise, both strengthen the family control of the enterprise, while dealing with family affairs.

Secretary room function One: enterprise Management and governance

In Samsung, the Secretary room is the core of the actual business of the group, is the group's central management Department, responsible for the entire Samsung Group intelligence collection and planning, financial resources allocation, decision-making management, personnel arrangements and operational diagnostics. Its inside Samsung has "one person under, million people above" status. Because of the custody of the chairman of Lee Kun-hee's seal, "room" represents the president.

Information collection and Analysis: This is the first purpose of Li Bing to create a secretary room, Samsung's secretary Room's intelligence-gathering capacity is even stronger than the National intelligence Organization in Korea. Data show that, whether it is a private party or business meetings, scattered around the world, Samsung staff are always collecting information, through the group single release, comprehensive summary to the Secretary room, the secretary of the investigation team under the 7 employees of intelligence analysis, processing, or sent to the Group subsidiary, or report to the Director of the room or the president.

The Monitoring team in the secretarial office is more responsible for gathering intelligence, research and analysis and planning, and high-level intelligence usually comes from the monitoring group, such as the tracking of competitors ' business strategies. The the 1990s Gulf War, the death of Kim Il Sung, Russia imported cash registers and other intelligence, all from the Samsung secretariat in the first time. Its intelligence-gathering power is reminiscent of the Rothschild family of the 19th century. Although it is not possible to control the bond market in the same way as the Rothschild family, the Samsung group can make rapid decisions and actions by using branches around the world to gain political and economic intelligence.

Allocation of financial resources: all the investment decisions of Samsung Group are made through the Secretarial Office Finance group. In general, the Chairman of the strategic direction, but the specific resource allocation, flow to departments and subsidiaries of the amount of the decision by the Financial Group. More than 100 billion won (about 560 million yuan) of investment must be approved by the Finance group, in fact, the company's general manager's discretionary investment limit is only under 10 billion won. Samsung Group's first woolen, Xinluo hotel, Samsung Electronics, Samsung Heavy Industries and Samsung precision companies are under the command of the Secretary of the establishment or acquisition.

The Finance group also dispatches the internal fund flow of the group. It is not hard to imagine that the Samsung Group's internal related transactions should be quite large, according to the South Korean Chaebul website 2012 Statistics, its 6 subsidiaries of the internal linked transaction ratio reached 100%, 21 subsidiaries more than 70%. The amounts and targets of these transactions are determined by the Secretary-General.

The external fund-raising is also arranged by the secretarial office. In the 1984 Samsung Semiconductor construction Plant, the internationally unknown company could not obtain the trust of investors, so the secretariat of the International Financial unit in the name of Samsung Group to raise 14 billion U.S. dollars overseas investment. In the face of the Asian financial crisis when the foreign hedge fund malicious takeover, then the Secretary of the Treasury group leader Jin Renzu lobbying European financial institutions, held a loan extension consultation, and the Goldman Sachs Group for investment negotiations, successfully secured enough funds to retain the right to operate.

Unified decision Management: After the 1997 financial crisis, South Korea began to reform the economic structure, Samsung Group set up a restructuring committee to study the direction of investment development. The members of the Committee are composed of the chairmen of the subsidiaries and the Minister of structural adjustment, Hak, meeting once a month. However, because of the real power of the structural Adjustment Department, its internal team leader meeting is the actual organization to make decisions, thus forming a "Chairman → Structural adjustment Department → subsidiary general manager" Pyramid of authority within Samsung.

In the era of structural adjustment Department, each subsidiary company has a management supervision, this part corresponds to a operation supervision. Management supervision is usually performed by a person in charge of the internal department of the company, who reports directly to the structural adjustment Headquarters, feedbacks the information, evaluates the company's performance, carries out business consulting (including improving the work system, improving efficiency, anti-corruption investigations) and communicates its views. The operation supervision under the Finance Group of the restructuring department acts as the head of each subsidiary to oversee and avoid duplication of operations between subsidiaries.

The decision of general manager of Samsung Group subsidiary is carried out under the guidance of "room". "Room" once instructed to stop China's margin financing, all cash transactions, the subsidiary will have to comply with this opinion. "Room" for a subsidiary to develop a strict profit and loss benchmark called "Management benchmark", subsidiaries must be strictly implemented, at the same time, "room" on the "management benchmark" decision has a greater autonomy to judge the space, even if the company's performance is good, if the financial Group is not satisfied with an indicator, can still be in the "management benchmark" to the deficit.

Law and lobbying: the Secretariat's legal and lobbying groups have only one purpose, which is to gain policy advantages for families and businesses.

The legal unit was originally responsible for the group's legal advice, but according to Kim Yong, the original legal head of the Secretariat, its mandate included lobbying and even bribery of the judiciary. In 2006, the legal unit was separated from the structural adjustment department and became an independent chamber of law with 110 lawyers and 13 former prosecutors.

The secretariat has always been mindful of the movements of political, media and inspection units and personnel. In South Korea's presidential election, it pays close attention to candidates, collects opinion polls, allocates funds, and lobbies for years of business contacts.

Human resource allocation: The secretarial office has a dual function in human resources. Internally, the personnel group controls all the subsidiaries of the Group (M2) personnel appointment and dismissal, salary bonuses, and the establishment of personnel files. According to Kim Yong revealed that the group's personnel review by the restructuring of the Department to evaluate, the subsidiary general manager did not have the right to speak of personnel. Therefore, when the personnel are appointed and dismissed, the biggest problem of the general manager of each subsidiary is how to ensure the cadre quota of the company. Secretarial staff with group management competence are often received.

External, the personnel group to recruit a wide range of social elites, chief above the post recruitment by the Secretary Room and the president decided. Samsung's secretary room has therefore become a high-level talent training center, known as the "Talent Petty Officer School", bringing together the Korean elite, the formation of the Samsung Group's interpersonal network. The structure adjustment department is usually composed by the subsidiary's superior ability and enters the company more than 5 years management layer.

Secretary Room function Two: family management and inheritance

Compared to other typical family offices, the Samsung secretarial Office does not directly manage the private assets of the Li clan, which has a direct relationship with the tangled, public-private assets of the Samsung Group and the Li clan. As the family assets and corporate assets are not fully separated, and the European and American family offices clear positioning is different, the Secretary room is more committed to the Samsung Group and the Li clan overall development.

Although there is no name of the family office, but the Secretary within the group from the inception of the Department has been shouldering the functions of the Family office, the implementation of the family resources of the central distribution, succession planning, social capital management, financial Capital Management and many other responsibilities. While managing the business, the secretarial office has a long history of service to the Lee clan, from concierge escorts to shelter, from tax planning to wealth inheritance.

Concierge: the "room" of the secretarial team to the president to provide basic secretarial functions, including concierge and security. More than 100 members of the accompanying Secretary and security personnel responsible for the 24-hour President Lee Kun-hee Safety and schedule, 3 shifts. When the president is on business, the group of secretaries should prepare a detailed schedule and route plan, check the travel route and office one months in advance. The concierge team also has to be responsible for the furniture and environment of Lee Kun-hee hotel room, each business trip will be the hotel room in accordance with the pattern of the home of Lee, the indoor pressure to maintain at an altitude of 600 m conditions, room temperature must be maintained at 25-26 degrees.

Communication traffic: "Room" of the communications team at any time, 24 hours to provide satellite surveillance video footage, in preparation for Lee Kun-hee at all times to master the situation. A communications group of more than 3 people will not leave Mr Lee's side, he is at home in the basement, in the company when the president's office, stay in the hotel is in the next room. If he needs to contact someone, the communications team can find and contact them at any time.

Lee Kun-hee's car is a modified Boeing 737-700 large aircraft, more than 100 seats in the cabin was transformed into a wide 16-seat and bedroom. In order to serve the special plane, the secretary has dug 5 senior pilots and 2 outstanding cabin attendants from Korean Airways, who are the highest rated employees of Korean Airways. Korean Airways, which had mistakenly thought Samsung was planning to operate across borders, was a strong protest. 5 drivers were divided into two service groups, and one remained on standby.

Residential/Health/art management: Lee Kun-hee and his children's address are selected in the Seoul pear Thai courtyard, Hannan Cave near the feng Shui Treasure, the formation of a real "Li clan village." Through the "room" of investment operations, Samsung operating Leeum Art Museum is also established in the "Li Clan village" inside. In the name of the need to protect expensive art in the museum's interior, Lee Kun-hee is legally equipped with a large number of security personnel in the family residential area. At the same time, the Leeum Gallery of the underground opened a dedicated to the Li clan and Samsung management Team Services of the Dental Hospital, the family members can get a full range of health management.

The secretarial office is also responsible for satisfying the Li clan's personal interests. Hongro, a university major in fine arts, will buy 55.06 trillion won (about 3-3, 500 million yuan) of art each year, all from the funds in the secretarial room.

Family inheritance and tax planning: From 1994 onwards, the Secretary's office launched the "Operation Management succession plan" to assist Lee Kun-hee's eldest son Lee Samsung Group. The main task of the secretary's Finance group and the Legal Affairs Group is to strengthen the family ownership of the enterprise through the method of cross shareholding in the process of inheritance. South Korea collects high estate taxes and gift taxes on the heirs or recipients of large property (table 4), therefore, the "Operation Management succession plan" also to Lee Kun-hee's property gifts designed to avoid the delivery of up to 50% of the property donation tax.

According to Kim Yong in the "Samsung Insider-uncover the truth of Samsung first" statement, the restructuring of the Department's financial unit through elaborate design complex operation to help Lee Kun-hee completed the transfer of ownership and management rights.

In 1994, Lee from his father's hand to get 6.1 billion won the start of money, in the payment of 1.6 billion won the property after the donation, Lee first bought the value of 2.3 billion won security company Samsung S1 (Safety No.1) of the shares, in 1996 Samsung S1 listing, its profit of 27.3 billion won. After that, Lee used the money to buy shares in a number of Samsung's subsidiaries, benefiting 25 billion and 13.38 billion won, respectively, from Samsung Engineering and Cheil Communications.

After the first step of asset appreciation, the second step is the transfer of management rights, the most important is the Samsung Group's holding company-Samsung Love Treasure Park. In 1996, Lee bought 1.25 million shares of "privately placed convertible bonds" at the price of 9.62 billion won and turned it into a 31.9% stake in Paradise. In 1997, Lee bought Samsung electronic convertible bonds at a low price, owning a 0.6% per cent stake in Samsung Electronics. Samsung's Treasure park in 1998 increased its stake in Samsung's life insurance to 20.7% by buying shares in the hands of Samsung's executives. Finally, Lee bought 23 billion trillion won of the Samsung SDS with certified equity bonds, and in the second year the use of equity, the company's holdings of Samsung shares increased to 25.1%.

These deals have caused a lot of criticism in South Korea, where Lee Kun-hee and two top executives of the park have been accused of selling cheap treasure Park convertible bonds and Samsung SDS with certified equity bonds, but the court ended up not guilty. At the same time as the largest shareholder of Samsung Treasure Park, Lee also controlled the entire Samsung empire, which paid only 1.6 billion won gift tax.

In most Asian companies, the control of the controlling family (voting rights) is usually greater than the cash flow right through pyramid shareholdings or cross shareholding structures. South Korea's chaebol are no exception, and they generally maintain control through complex, overlapping equity structures. Within the Samsung Group, the Li clan also holds a small stake in the group's subsidiaries, about 1% to 2%, but is firmly in control of the group. The flagship Samsung Electronics's largest shareholder is Samsung Life Insurance (7.7%), while Samsung Life Insurance's largest shareholder is Lee Kun-hee and Samsung Treasure Park (20.8% and 19.3% respectively), Samsung Treasure Park's largest shareholder is Lee (shareholding 25.1%), Samsung Electronics holds a 37.5% per cent stake in Samsung's credit cards, and Samsung's credit card holds a 8.6% stake in Samsung's Treasure Park. Through this kind of cross shareholding structure, Lee Kun-hee and Lee become the actual control person of Samsung Group.

Through table 5, we can further observe the ownership structure of Samsung Life insurance. In addition to Lee Kun-hee and Treasure Park, the third-place shareholder New World Department Store (Shinsegae, shareholding 11.07%) belongs to Samsung founder Li Bing daughter Li Mingxi, while the fourth largest shareholder CJ Group (Cheiljedang CJ, the original first sugar company, shareholding 4.8%) Controlled by Li Bing's long Sun Li in Rong. This shows that the Li clan through the control of Samsung life insurance and Love treasure Paradise, mastered the Samsung Group's right to operate.

Management and operation of "room"

"Room" for the entire Samsung Group's governance through formal and informal meetings to complete. Formal meetings include the structural Adjustment Committee, the Wednesday meeting and the group leaders meeting. The informal meeting was attended by cadre meetings and meetings, only to allow for a more harmonious exchange and exchange of information between departments.

In a formal meeting, the structural Adjustment Committee is held once a month and consists of 5 general managers of the major subsidiaries. Initially, the members were composed of Samsung Electronic original CEO Yun Jongrong, Structural Adjustment Department Minister Hak, Samsung Property general manager Pei Zhongli, Samsung Life insurance general Manager Xiang Zheng Zhong, Xinluo Hotel general manager Hutteh. The form is the discussion group development direction, actually is arranges the Secretary room leader meeting the resolution matter.

The Wednesday meeting was a meeting of the general managers and secretaries of the Samsung subsidiaries, held every Wednesday, and invited some external celebrities to attend. As the general manager of Samsung's subsidiaries has no real power, it remains a "room" ruling.

The group leader meeting refers to the internal team leader meeting of the Department of Structural adjustment, all of which are based on all major decisions. Group leader meeting or report from the subsidiary collected information and outstanding matters, the personnel dispute will be in the team leader meeting report, illegal accounts by the Monitoring Group, litigation issues by the Legal Unit report, and so on. The summary of the leader meeting by Hak personally responsible, directly to Lee Kun-hee report, Lee Kun-hee after the instructions again in the group leader meeting discussion.

In the Samsung Group, from the upstream order procurement, to investment decisions, and then to personnel evaluation, "room" are all in every detail to audit.

The advantages of a built-in family office

One advantage: centralized decision-making, efficient implementation, to enhance financial capital. As a central hub for a large group, the secretarial office ensures that Samsung's companies can make strategic decisions that are conducive to the development of their businesses in a long-term family perspective and ensure the efficiency of implementation through the efficient operation of this built-in fo.

The investment and operation of public companies often pay dividends for the maximization of shareholders ' short-term interests, and professional managers pursue short-term performance growth by stimulating the system. In this case, it is difficult for companies to make the best decisions in the face of crisis. Samsung secretary Room is a holding family of "fen Shen", whether from the group's cross-shareholding structure or business structure, Samsung Group Control rights and executive Power are highly concentrated in the hands of President Lee Kun-hee. The President of the group to set the overall interests of the strategy, the secretary room for the allocation of resources, the subsidiary of the Professional general manager to implement. After the 1997 financial crisis, the Li family shares were diluted, the Li family through the secretary of the powerful power to govern enterprises, in the case of poor performance, to make a decisive investment.

Lee Kun-hee and the group's subsidiaries between the Secretary Room, is the Samsung Group's information and decision-making hub. The presence of the secretarial office has had a decisive impact on Samsung's decision-making speed. Samsung's subsidiaries are spread around the world, the layout is dispersed, the geographical distance makes it more difficult to implement the decision quickly, in this case, the subsidiary has the financial resources and personnel decision right of the Secretary Room played a role in commanding the whole army, the speed of the implementation of Samsung is the group's overall competitive advantage.

Advantage Two: Guardian family reputation, promote social capital. "Room" also for many times to come forward to assist the family through the difficulties and win Lee Kun-hee's very high trust. In the failure of Samsung automobile, "room" to maintain the image of Lee Kun-hee, so that it avoid falling into the awkward situation of business blunder. Similarly, in the aftermath of the Asian financial crisis, Mr Lee, aided by the Finance group, led the Samsung reform, cutting 60,000 people in 200,000 employees, saving the group 1 trillion won (about 5.6 billion yuan) in personnel costs.

Three advantages: Careful planning and inheritance, improve human capital and family capital. When the family business is still the family's main asset, the successful inheritance of the enterprise is the foundation of the family prosperity. At the same time serve the family and enterprise, Samsung Secretary Room in the family business of the inheritance of important. First of all, to determine the inheritance of the right of management, for the ownership structure of such a complex Samsung group, built-in FO is undoubtedly the best way to implement the Heritage Plan: the Secretary Room in the political and business beats, create a favorable policy environment for Lee to inherit Samsung; The secretariat through the manipulation of equity trading, Let Lee to the very low cost of Samsung Love Treasure Park control, in order to take over the entire Samsung Group Good Foundation.

Lee Kun-hee's son Lee's career route in the group is also designed by the secretarial office. Lee in the United States to enter the group, the first was arranged in a key position to help him establish the prestige, for the future inheritance paving: 2001 as Samsung electronic executive assistant, Samsung Electronics Vice president and chief customer officer, in the 2010 to become Samsung Electronics president, 2012 become Samsung Electronics vice president.

Disadvantages of a built-in family office

Disadvantage one: High centralization of power, stifling the initiative and creativity of affiliates. The Samsung secretarial office, which holds power, has many drawbacks. In corporate governance, the excessive concentration of power exerts an intangible pressure on the subsidiaries of Samsung Group. Samsung secretariat office is accused of excessive interference in the operation of subsidiaries, the investment of almost no control of the general manager of the subsidiary, must obtain "room" consent to carry out day-to-day operational decisions.

In the absence of third-party monitoring, management lacks transparency. The consequence of excessive centralization of power is that bureaucracy prevails, weakening the decision-making ability of subsidiaries, and is not conducive to stimulating their initiative. Any investment by a subsidiary, even a mere thousands of won, would need to go through a complete process, reporting layers to the Finance section of the secretarial office. The secretarial room that makes Samsung Proud is also an impediment to Samsung's development.

Samsung Motor's Portuguese branch has had a 100 billion won embezzlement of public funds, because the company's internal documents are Portuguese, leading to incomplete understanding of the South Korea headquarters decision-making errors, indicating that a high concentration of power is not conducive to local conditions to make optimal decisions.

"He worries that the Secretariat's involvement in important decisions will lead to the disappearance of the innovative thinking of the executives and staff of subordinate companies," the former secretary of the Chamber, Chang Hyun Ming, said in an interview with the South Korean Herald economy. "Lee Kun-hee has reformed the Secretary room to weaken his right to operate, and intends to limit the Secretary room's interference in the decision-making of the company." Unfortunately, the restructuring department, which represents innovation, still failed to give its subsidiaries the space to operate autonomously as he wished.

Even more troublesome is that the Secretary Room's power is too concentrated, may bring very serious principal-agent problem, the Secretary room domineering, Hujiahuwei. Lee Kun-hee, who had been aware of the problem in 1993, had repeatedly pointed out in overseas meetings: "The secretariat has exposed the drawbacks of centralized system." As a 500-year history of North Korea, the secretariat will only build fences between the president and the President and senior executives. I have felt that the secretarial office is in the middle of power and can even be called the Gestapo or the KGB KGB (the former Soviet Union's National Security Council). If I were to inspect the factory, the secretary would have instructed, ' don't look at the president's face, pretend to work hard, you have to take attention ' and so on. They will only speak in front of me, and ask them to bring the bad. The secretariat has been suffering from ' camouflage ', which has been the case for the past 5 years. ”

Two disadvantages: public and private, aggravating the conflict of interests between family and enterprise. As the name suggests, the family office should be the ultimate goal of family interests, but in Samsung, family and business boundaries are not clear. In the event of a conflict of interest, is the "room" true to the company or to the Li clan?

Public and private is the biggest hidden danger of Samsung built-in fo. The Secretary room plays the core role of the group's strategic decision and resource allocation, but it does not take responsibility for the small and medium-sized shareholders of the Samsung companies, but only orders from the individual of Lee Kun-hee. Kim Yong often heard that the restructuring of the headquarters "defending the president and the group" and other words, Samsung's secret funds are also "room" second-in-command Jin Renzu known as "chairman of the Fund", indicating the attitude of loyalty to the president.

This lack of transparency makes it difficult for outsiders to tell whether the Secretariat is at the centre of Samsung's interests. In fact, in the face of the family and business, the Secretary of the Office is more inclined to the family, which may be detrimental to the long-term development of enterprises. For example, in recent years, the momentum of the mighty Lee Kun-hee birthday party, was publicly included in the calendar of Samsung Group, dinner often invited South Korean famous artists to sing, the use of air from abroad to the food, and this cost 1 billion won the banquet expenses are borne by the Samsung Group.

The general manager of Samsung Petrochemical subsidiary has also consulted the structural adjustment department for his dilemma in collecting accounts receivable. The original debt business is at that time into the operating dilemma of the World Han Group (Saehan Group), its predecessor is Lee Kun-hee's brother Li Changxi's first fiber, 1997, the son of Li Changxi took over the first and renamed the World Han Group. Consider whether accounts receivable "receivable" this matter, the side confirms that the built-in fo is inclined to sacrifice the company's interests to meet family interests.

"Room" in charge of the president's family funds. In his "Confession of Conscience", Kim Yong claimed that the "secret funds" established and administered by the Samsung secretariat were more than 10 trillion won, mainly for the Lee Clan service. He points out that the secretarial office manipulates links with overseas subsidiaries, transferring assets and profits from subsidiaries to the family holding company, the Treasure Park. The secretariat collects a 15%-22% "sample fee" from each associated transaction with its subsidiaries, aggregating the profits of subsidiaries into this part by distorting the amount of the transaction, and hiding a large amount of secret funds in the name of the group's executive head account for illegal lobbying and bribery.

Three disadvantages: vague positioning, lack of clear family governance planning. Confined to the limited resources and manpower, Samsung secretary Room will be the main focus on corporate governance, so that the implementation of the negligence of family governance. The scope of the Secretariat's management seems to be very broad, but often busy with urgent and short-term business, easy to ignore the family more important but not urgent work. Thus, compared with the European and American independent FO, the Li clan fo lacks the overall idea and implementation of family governance (see the January 2014 Pitcarn Family office: Wealth inheritance after quitting the family business). Samsung secretary Room in the family governance of the lack of input and design, but also led to the Li Bing era of the three sons of contention, brothers, one of the reasons.

In addition, the lack of the built-in fo independence also limits its impartial objectivity and talent supply. There is no doubt that the vast majority of members of the Secretariat are the backbone of the enterprise for many years, rather than the open recruitment of industry veterans, although more loyal and reliable assurances, but may bring "only" and "only" conflict between. On the positive side, the internally promoted staff will be grateful for the autobiography of the Family; On the downside, the story of the emperor's new clothes will continue to be staged because it may be sacrificed to the family. Lee Kun-hee himself once said Secretary Room: "The president did not do well or do wrong, should not say ' Ah, president, not like that, but so ', to correct him out?" However, no one would say, ' the president does it, the president does it '. ”

A revelation to the Chinese family

We call 2013 "The first year of the Chinese family office", not only because the Chinese family have accelerated into the process of inheritance, but also because we witnessed the establishment of several family offices in China, especially the mainland. In the research of the Family office of the five Crossing Finance Institute of Tsinghua University, through the discussion with many entrepreneurs on the strategic planning and implementation of FO, we find that the early form of the current development of the single family office in most China is the strategic Investment department set up by the controlling family in the group company (holding companies) or other names such as the Department of Strategic Development), or under the group to establish an investment company to carry out the company's non-main business areas of investment (equity investment, real estate investment, or private banks, trust companies and other financial institutions to invest in financial assets of counterparties), by the CFO or financial team, The assistant or family second generation that the Chairman trusts.

According to our preliminary observation, a considerable number of Chinese family office development routes may be different from the European and American families to set up independent family offices, but with the Samsung Lee family in the company's secretarial room has more similarities. Therefore, it is of great significance to study deeply the development and evolution of this model and its advantages and disadvantages. In fact, this is also influenced by the Confucian culture of East Asian Enterprises more commonly adopted model, South Korea's several chaebol LG (LG), Hyundai, SK, etc. are used "built-in fo" mode. This is also the more natural and easy fo development path-after all, in the family business for many years of industrial enterprises, financial capital and human capital are ready-made.

But, as we have a case study of the Samsung secretariat, despite many advantages in business and family management, there are inherent contradictions and problems in this form of family office, and even the entrepreneurs are imprisoned for inadvertently crossing the red and private lines (in fact, Lee Kun-hee, SK Group Tri Taiyuan and Hyundai Group Koo have been sentenced for similar problems. Family office is the top of the family wealth management design, can not design side of the construction, therefore, the Chinese family should be in the enterprise capital and family wealth separation in the early stages, combined with the family's situation for systematic planning.

From the Samsung case we can also see that the family office is not the same, the need to be based on family heritage goals, culture and values and other intrinsic factors, as well as family enterprises in the industry, family structure, intergenerational evolution, regulatory environment and social trends and other external environment changes to adjust accordingly. In the next column, we will discuss the strategic positioning and planning of the family office in more detail, and will combine some typical cases to describe the dynamic process of evolution in depth.