The Lee family (from Inheritance: Samsung): Part two

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1:50I first remember that there were rumors about KH Lee being in poor health, but there was no confirmation, of course. Samsung is very secretive about that kind of issue. It's May 2014, a year before shareholders will gather for that controversial vote on the merger between two important Samsung businesses. Jae Yeon Lee, like many South Koreans, has been aware of the Samsung leader's declining health for some time. And then I remember seeing on the news that he had had a heart attack and was taken to the hospital. And people started to sense that maybe the end of an era was coming. That was a week ago.

2:41the Samsung chairman, K.H. Lee, lies still in a hospital bed. Machines rhythmically beep and whir and hiss. His son, Lee Jae-yong, or as we're calling him, J.Y. Lee, has returned from a business trip in the U.S. The hectic life of Samsung's emergency boss is on a brief pause. Because that's what J.Y. Lee is now. His formal succession is still far from secure, but for now, he's the obvious stopgap. The conglomerate's best-known business, Samsung Electronics, is one of the most profitable tech firms in the world. But it has to compete to stay that way. There's a lot going on. A costly business war rumbles on in the courtroom against American tech giant Apple.

3:33as new smartphone makers try to chip away at Samsung's global dominance. What the Samsung empire needs right now is stability. K.H. Lee had grown visibly frail. Ever since his cancer diagnosis more than a decade ago, he'd had lung problems. And just last year, he'd been hospitalized with pneumonia. He wasn't giving the grand speeches anymore. And he had delegated a lot of responsibility to his executives to take care of the company for him. The business and technology journalist Jeffrey Kane remembers K.H. Lee's retreat from the spotlight. He spent many of his elder years in his house in Seoul, which is called Sungjiwon.

4:18It is a gorgeous palatial estate at the top of a hill in the central part of Seoul. Chairman K.H. Lee had been taken to hospital for emergency heart surgery. He's been in a coma ever since. Sojin Lim is co-director of the International Institute of Korean Studies at the University of Lancashire in England. She was born and raised in Seoul. When we heard that KHL had a heart attack, it was quite a significant moment for the people who would think, oh, what would happen in Samsung? and especially for the older generation who grew up with most of the mid-age life with South Korea's economic development period, they were quite shocked and worried about the future of Korea's economy then because Samsung was the very significant leader of the economy for them.

5:18Over the 25 years that he had run Samsung, KH Lee had transformed it from a successful Korean chaeble family business into a global maker of smartphones, TVs, and memory chips. Its influence in South Korean life is all-encompassing, from hospitals and schools to hotels and baseball. It's known by many as the Republic of Samsung. And as the company's fortunes have lifted, so too have South Korea's. Samsung's annual sales account for one-fifth of the country's GDP. But now, with the chairman close to death, the question is, who will take his place? Jae-yon Lee, reporter at South Korean newspaper Hongkyore.

6:07It's a bit sexist, I think, but in Korean chebor, there is this tradition where only the sons inherit the important businesses. and J.Y. Lee was the only son in the family, so people automatically thought that he would inherit. What wasn't as obvious, I think, was whether he was really prepared for that role. For years, J.Y. Lee's father had been preparing his son to one day take over the family firm. Since the early 1990s, he'd cycled through all the sorts of roles you'd expect of someone being groomed for the top job. Chief customer officer. Chief operating officer. Now he's vice chairman. Just one rung from the top of the ladder.

6:55But he has enormous shoes to fill. From what could be seen, his character was just really different from that of his father. While his father was seen as very aggressive and just very goal-oriented, J.Y. Lee was seen as more shy and quiet and cautious. A little bit aloof, a little bit unsure. And he isn't one for publicity. He doesn't do product launches. He doesn't do interviews. He isn't prey for the paparazzi. He hasn't captured the hearts of South Koreans. His eldest sister, on the other hand. She was seen as sharp, likable, intelligent. She had a bit of glamour around her. She's really into fashion.

7:41And so one of the things about the Lee family, South Korean paparazzi and tabloid media, they just go wild for them. They're always trying to watch, you know, what handbag does she have? What car is she driving? She's also proven herself in business. Some are talking her up as a leadership rival to her brother, J.Y. Lee. She was seen as a more capable leader. She got the nickname the Little K.H. Lee. But there's a snag for both of them. Although a series of gifts, mergers, and stock flotations over the last 20 years has gradually shifted control of most of the empire to K.H. Lee's wife and children, the project to secure family control of Samsung isn't finished.

8:27Whoever takes control of the company will have to complete the complex plan. And that's not all. Elderly K.H. Lee has become one of the richest men in South Korea, a country with one of the highest rates of inheritance tax in the world, up to 60 percent. Whoever takes the crown will be on the hook for a fortune, more than$5 billion. dollars.

8:57J.Y. Lee is rich. He's a billionaire, but he doesn't have enough money raised yet to be able to pay the inheritance tax. His riches are in Samsung's shares, not cash. If he were to start offloading his shares and selling parts of the company, he would dilute his ownership and he would end up not being in control of Samsung. That's the core problem. J.Y. Lee will have to move fast.

9:32I'm Elise Hu. From the BBC World Service, this is Inheritance, the stories of the families behind some of the world's biggest companies. Our journalists have scoured the archives, combed through memoirs and handpicked experienced observers to take you inside these dynasties. At times, we'll recreate, as faithfully as we can, the pivotal moments, all to understand how powerful empires are built and passed on. Season 1, Samsung. Episode 2 of 10, Move Fast and Break Things.

10:14To understand why Chairman K.H. Lee's heart attack is so devastating, not only on a human level, but for the business, we first need to understand why the family and why Samsung is so complicated. And to do that, we need to go back more than five decades before JY Lee and his father K.H. Lee to Samsung's first chairman, JY Lee's grandfather, to the man who founded the company. His name is Lee Byung-chul, B.C. Lee.

10:50It's June 1961 and B.C. Lee steps out of the bright summer sunshine and into a cavernous room. As his eyes adjust to the light, he no doubt takes in his surroundings. A hard stone floor, flag-draped walls, soldiers in crisp fatigues flanking each entrance. At the other end of the room waits a man. A man with the power to snatch away everything B.C. Lee has spent his last two decades building. B.C. Lee had tried to avoid this moment altogether. But his country is in crisis.

11:35The previous April, a student-led uprising fueled by anger at poverty, government corruption, and repression, had toppled South Korea's autocratic president, Syngman Rhee. In the months that followed, B.C. Lee could only watch helplessly as Samsung's offices were raided, assets confiscated, and his own tax affairs pulled apart. Protesters had, unjustly in B.C. Lee's view, accused Chabels, large family businesses like his, of crony capitalism. It's when companies thrive, not through free and fair competition, but by sidling up to those in power, even paying them bribes to turn a blind eye to malpractice.

12:18But the unrest didn't stop there. In first pictures from Seoul following the pre-dawn military coup that overthrew the South Korean government, troops guard public buildings in the early hours of martial law. The man at the end of the room who has summoned the Samsung chairman is Park Jung-hee, the general who has just taken power in a military coup. He is wary of people like B.C. Lee. When Park Chung-hee, the original dictator of South Korea, took power, he hated these companies. He thought that they were a bane to the existence of this republic he was trying to build. And the reason he thought that was because he thought that family wealth, family aristocracy is antithetical to building a modern republic.

13:06That's what he wanted for Korea. The country is still suffering economic hardship following the Korean War a decade earlier. It was a battle that split the country into communist North and capitalist South, each backed by Cold War rivals who wanted control of the Korean Peninsula. And when the general Park Jong-i took over, he kind of wanted to remove the accusation by the people that this government is corrupt. He wanted to consolidate his grip on power, and punishing the powerful but unpopular chable owners was a popular move. And one of the biggest chables at this time is Samsung. B.C. Lee had this reputation for being the freewheeling, wealthy playboy of Korea.

13:52He was the richest man in the 1950s. B.C. Lee had started Samsung in 1938 as a fruit and vegetable business, exporting produce to China. The name literally means three stars. Sam meaning three, but also in Korean, symbolizing big and strong. And sung meaning stars and symbolizing, well, shining brightly. For B.C. Lee, it perfectly encapsulates his vision for the company. By the 1950s, the business had grown, acquiring a sugar refining firm, a wool spinning plant, a brewery, some banks, an insurance company, and a university. B.C. Lee was not the kind of guy to put all of his eggs in one basket.

14:41When the coup d 'etat happened, B.C. Lee was in a hotel in Japan. Japan was his refuge when he was able to escape there. It was like a second home and where he'd spent many years studying as a young man. He'd been getting ready for an early morning round of golf when his Japanese driver had told him about the coup. He'd felt anxious, though not enough to postpone the round. But a few days later, according to B.C. Lee's autobiography, the source for much of this information. Two government agents showed up at his hotel in Japan. They left the note telling him to return to South Korea or else.

15:26Back in that cavernous room, B.C. Lee feels the hard stare of a short, stern-looking man. Park Chung-hee really has this military martial ethos to him. He's a military man. He served in the Japanese colonial military in the past. And he's very much a dictator. He's not friendly to B.C. Lee, and it's clear from this meeting that he will put B.C. Lee in jail if B.C. Lee does not cooperate with the government. Perhaps the light glints off the man's sunglasses unnervingly as he strides towards him. And so President Park said, you can say anything, so speak without reservations. Is this a trap? Does General Park expect him to apologize?

16:12Is he looking for a bribe?

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18:44B.C. Lee needs to tread carefully with South Korea's new leader. But in this moment, as he writes in his autobiography, he decides the best policy is to speak his mind. It's a gamble. Other table owners have just been sent to prison by the new dictator. He tells the general he doesn't believe there's anything wrong in businessmen accumulating wealth. So B.C. made his case that he would work for the national interest. Businesses create jobs, he tells the general, which improve livelihoods, which raise taxes, which pay for national defense, schools, roads, ports. How can South Korea climb out of poverty, B.C.

19:28urges, without its giants of capitalism? them. But Park Chung-hee first shot back, he said the people will not accept this solution. Maybe they won't, but then it's the job of politics to convince them, BC tells him, feeling bolder, more on the front foot now. And so the grand bargain he decided would be that prison time would be pointless for BC Lee because that would strip Samsung of its uses. BC Lee and Samsung were still extremely useful to South Korea, but instead BC Lee would have to pay And so he had to give up his three banks to the government. He also had to pay$4.4 million in today's money in unpaid taxes and penalties.

20:08But at least no prison. The deal is clear. Samsung can survive. But only if it does Park Chung-hee's bidding.

20:23April 1967. 1967, six years since B. C. Lee stood in front of Park Jong-hee. A curious collection of men stand in a small fishing town of Ulsan in the southeast of the country. They're here for a dedication ceremony. Korean farmers wearing wide-brimmed hats stand alongside men in suits, businessmen, and politicians. Spring mists hang above the fields. But there's something else. Clouds of pungent air engulf the men. A stench of rotten eggs belched from the tower of a vast newly built fertilizer factory. Presiding over the opening ceremony is the man who built it, B.C. Lee, the chairman of Samsung.

21:14As a boy growing up in rural Korea, B.C. Lee had witnessed farmers struggling to get enough food from the land. He'd wanted to help his country become more self-sufficient. The timing, the finances, had never quite been right. But when the newly installed dictator, who had been elevated from general to president in 1963, had offered him an ultimatum, let's just say the moment suddenly felt right. President Park ordered Samsung to open the factory. President Park was known to understand the importance of the agricultural sector development because he himself was from those rural places and also the fertilizer was quite a significant thing to achieve the development.

22:04Park Jung-hee had begun harnessing the power and money of Chables to build a new modern South Korea. Because everybody was so poor, most of the people lost their land properties by the Japanese. So around that time, at the rural places, you just exchange, for example, your rice with your clothes for something like that. South Korea had a barter economy, a far cry from the thriving, export-driven, taxpaying population the president wanted. He had a lot of work to do, almost starting from scratch. And to understand why, we need to travel a little further back in time. Up until relatively recently, South Korea had been part of the Japanese empire.

22:51It's all B.C. Lee had known from his birth in 1910 to the end of World War II and Japan's defeat. B.C. Lee himself had worked with Japanese businessmen and politicians to get Samsung started in those early days in the late 1930s. It was the Japanese, when they occupied the peninsula in the early 20th century, who had built Korean infrastructure. Most of the factories, the railway facilities were built by Japanese in northern side of Korean peninsula because that was a way to go up to Manchuria. Manchuria, where the Korean peninsula meets China. The south, though, largely missed out. So in southern part of Korean Peninsula, we didn't have those kind of facilities.

23:38And also the natural mineral resources in South Korea was a lot less than the north side. That's the situation when the Japanese Empire is defeated and collapses in the 1940s. And its grip on Korea ends. And it meant that when the peninsula was split in two along the 38th parallel following the Korean War of the early 1950s, The South lost out. There was literally nothing for South Koreans to start with. Some people even compared the South Korean economy at that time was lower than the North Korean economy. B.C. Lee's country had been dependent on aid from the U.S. ever since. In fact, his reason for starting Samsung had been to try and change that.

24:27And this fertilizer factory, despite the ultimatum, had the potential to do good.

24:36It had taken 18 months to build, record quick time. Dozens of cargo ships, groaning under the weight of chemicals, construction materials, and heavy machinery, had crossed the Sea of Japan and docked at the purpose-built pier in Ulsan Port. But not all of the new raw materials, it seems, had been bound for the new factory. Some of the chemicals that were brought in the country to make this fertilizer were sold to a saccharin processing firm for a$40 ,000 profit. This was another big industry in South Korea at the time. Saccharin, the artificial sweetener, is big business. And it seems someone has set up a rather profitable sideline.

25:22The reports about what exactly was smuggled differ, whether it was saccharine itself or the ingredients to make it. And we're not sure if the goods were stolen from the fertilizer project, as Jeff suggests, or whether the factory build was used as a cover to smuggle in something else. But whatever happened, the point is, this fertilizer plant had nothing to do with sweeteners. And whoever was pocketing the proceeds was breaking the law. And then, somehow, word had got out. The government made a big deal out of this. They launched a crackdown. President Park said that this was a major crime against national integrity.

26:06It became a huge scandal. The news that someone had been enriching themselves under the cloak of a project designed to lift all South Koreans out of poverty. The scandal had led to angry scenes in South Korea's National Assembly. Some politicians thought the government was in on it. One assemblyman, a former gangster and activist with a feisty reputation, had launched into a tirade carrying a three-gallon bucket marked saccharin. Once he'd finished, he'd prized off the lid, dashed over to where the ministers were sitting, and thrown the contents over them. And shouted, eat this saccharin. And what was in the bag was actually human feces.

26:48Jeff's being polite. What the politician actually said was eat. Well, you can guess. It still begins with an S. The secret sideline had become a national uproar. And it wasn't just politicians in the firing line. The second of B.C. Lee's three sons, Lee Chang-hee, had been in charge of the fertilizer project on behalf of Samsung. He was accused of being in on it, or at best, asleep at the wheel. The president needed to sacrifice someone, and however you looked at it, the finger was pointed firmly at him. B.C. Lee even says he will step down as Samsung chairman. The government pressure was relentless.