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for the entire country. He could not just walk away from the empire that his father and grandfather had created, leaving Samsung and its hundreds of thousands of employees leaderless.

Lee and his predecessors had contributed manypositive virtues to the family business: their loyalty to stakeholders, the determination to survive by sticking to innovative products, the ability to favour a long-term approach over short-termism, and always putting the future squarely into the hands of the next generation.

All of these assets had grown stronger under theleadership of the second-generation leader Lee Kun-hee. The younger Lee rightly saw his future ownership and control of Samsung as an invincible force to be reckoned with.

However what was missing from the equationwas a long-term plan and it was this oversight that began to weigh heavily on the heir and overshadow all the positive virtues contributed by the Lee family members to the business.

In all fairness to Lee Kun-hee, he had started theprocess of cultivating a successor a few years before he suffered a heart attack. Given his extraordinary leadership abilities, he probably assumed that he did not need the 20 or 30 years of planning that is often required for even medium-sized family businesses to survive a succession.

In any event, the younger Lee perhaps grew tooimpatient with the turn of events as his father’s condition showed no signs of improving.

He knew he had to do something but under thecircumstances he or his advisers apparently started making ad hoc decisions.

To tighten Lee’s grip on the company, the idea ofmerging Cheil Industries with Samsung C&T emerged a year after his father’s heart attack. Lee would gain the control he needed to ensure his succession, since C&T owned a large bloc of shares in Samsung Electronics, the crown jewel in the empire. But it was this deal that eventually landed

him behind bars because illicit means were used to get the merger approved by the majority shareholder of C&T, the Korean state pension fund.

Many shareholders opposed the merger sincethe two affiliates had nothing in common with each other, nullifying any strategic imperative or economic rationale for the tie-up.

Furthermore, the price Lee put on the table undervalued the two companies, which infuriated an astute hedge fund manager named Paul Elliott Singer, the founder of Elliott Management, one of the oldest hedge funds on Wall Street. Singer had acquired a 7.1 per cent stake in C&T just before the merger was announced and begged anyone who would listen to him to consider the folly of the deal. To this, Samsung published anti-Semitic cartoons ofElliott in an attempt to damage his reputation, a move that it later apologised for. Once the merger

went through, the Lee family owned about 5 per cent of the total Samsung stock, but controlled the chaebol through a complex network of ownership.

Meanwhile, Lee’s absence has not held back theshare price of Samsung Electronics, which has surged 34 per cent since his detention in late February. Samsung Electronics, which contributes about three quarters of the group’s total revenues, is run by three top flight CEOs who each head up its major business segments, smartphones, consumer electronics and microchips. If anything, Samsung’s merger and acquisition activities may slow down a bit, since the non-family CEOs would lack the authority to make large-scale investments.

Lee will be released from prison at some point inthe not too distant future, but the time spent behind bars could actually serve to mature him and give him a new lease of life once on the outside. Meanwhile his mother and two sisters have visited him in prison, an implicit acknowledgement of his role as the de facto leader.

His plight, however, brings into sharp focus theneed for family-run businesses to pay far more attention to long-term planning or else run the risk of a Lee-type succession.

Morten Bennedsen is the University of Copenhagen Niels Bohr professor, department of economics. He is also the André and Rosalie Hoffmann chaired professor of family enterprise and academic director of the Wendel International Centre for Family Enterprise, INSEAD. Brian Henry is a research fellow at INSEAD

In 1938, a young man who had just lost his father used the inheritance money from his landowning family to set up a trucking company to ship fish, vegetables and fruit on the Korean peninsula and even across the sea to Manchuria and Beijing.

Lee Byung-chull called the enterprise Samsung,meaning three stars. It turned out to be a lucky omen, at least for the firm’s first two generations of leaders. The third “star”, Lee Jae-yong, Samsung’s 49-year-old de facto leader, had just started to shine when the dimmer switch started to erode his lustre. But light could still emerge from the young man.

Family-run businesses in the mainland and throughout Asia have a lot to learn from the tumultuous events surrounding the recent conviction of the third-generation leader of the Lee family. On August 25, a South Korean court sentenced Lee to five years in prison for bribing the country’s former president. Following an exhaustive trial, a panel of three judges had found him guilty of embezzling Samsung funds, hiding assets overseas, concealing profit derived from criminal acts, and perjury. Prosecutors had sought a 12-year prison term, but the judges gave him the mandatory minimum sentence. The verdict is not yet final, since Lee Jae-yong’s lawyers have appealed against the decision. He will remain in a Seoul prison, until the South Korean high courts make a final ruling, which is expected in January next year.

The strange turn of events may not appear relevant to many family business leaders outside South Korea, since it is the only country in the world where economic power is concentrated in the hands of family-run conglomerates called chaebol. But in reality, the succession crisis experienced by the Lee family may have some enriching lessons for other family businesses.

In early May 2014, just three years before his trialand conviction, Lee received the news that his father Lee Kun-hee had suffered a massive heart attack, rendering him totally incapacitated. Along with his mother and two sisters, he rushed to his bedside.

But the stricken man was incapable of utteringany words of advice. Since then the charismatic second-generation leader of Samsung has been kept alive in the Samsung Medical Centre in Seoul, a hospital that the family built and owns.

It was an enormous loss for the young heir, whosince birth had looked up to this giant of an industrial leader who transformed Samsung into a global powerhouse during his 50-year tenure.

His only son was suddenly forced to step into hisshoes, a move that the naturally reserved heir had only just begun to prepare for. Unfortunately, he had no choice. South Korea’s largest company, Samsung generates about 20 per cent of revenues

The jailing of the third-generation leader of the South Korean conglomerate brings into sharp focus the need for businesses run by families to pay more attention to long-term planning

Samsung saga sends out message

Lee Jae-yong ended up behind bars after illicit means were used to get a merger approved by the majority shareholder of C&T, the Korean state pension fund. Photo: EPA

Many shareholders opposed the merger since the two affiliates had nothing in common with each other, nullifying any strategic imperative

Morten Bennedsen and Brian Henry

MANAGEMENTSTRATEGY

The world’s biggest chip maker, Intel, announced on Tuesday that its former chief executive, Paul Otelini, had died in his sleep at the age of 66.

As its fifth chief executive, Otelini presided overthe period of largest growth of Intel, lifting the annual revenue from US$34 billion to US$53 billion in 2012. More money was made under his eight-year reign starting 2005 than in the previous 37 years of Intel’s existence. No other company can fire out a better and faster microprocessor, the engine that spurs into motion when you turn your computer on.

But the dominance of Intel is as much about itsinventiveness as its ability to predict product advancement. No other industry manages to engineer miracles with such absolute transparency. We tend to perceive innovation as something uncertain. Yet, that is not how Intel behaves. It is clockwork; it is anything but ambiguous.

In 1965, Intel co-founder Gordon Moore made abold prediction about the exponential growth of computing power. From the vacuum tube to the discrete transistor to the integrated circuit, the miniaturisation of computer hardware had progressed apace. Extrapolating the trend, Moore asserted that the number of microchip transistors etched into a fixed area of a computer microprocessor would double every two years. Since transistor density was correlated with computing power, the latter would also double every two years. As improbable as it might have seemed, Intel has since delivered on this promise, immortalising “Moore’s law”.

It is difficult for anyone to fathom the effects ofexponential growth. Exponential growth explains why a single iPhone today possesses more computing power than the entire spacecraft for the Apollo moon mission back in 1969. Without Moore’s law, there would be no Google, no Facebook, no Uber, no Airbnb. Silicon Valley would just be another valley.

When I was at a conference in Israel, a former Intel executive told me that Gordon Moore could get “rather philosophical” about the future of his law. When asked by his staff when this amazing trajectory might end, the co-founder responded, “Nothing grows exponentially forever.” And indeed, Intel was no exception.

In 2016, Intel disclosed in a regulatory filing thatit was slowing the pace of launching new chips. Its latest transistor is down to only about 100 atoms wide. The fewer atoms composing a transistor, the harder it is to manipulate.

Following this trend, by early 2020, transistors should have just 10 atoms. At that scale, electronic properties would be disturbed by quantum physics, making any devices hopelessly unreliable. Samsung, Intel, and Microsoft have already shelled out US$37 billion just to keep the magic going, but soon enough, engineers and scientists will be hitting the fundamental limit of physics.

The imminent demise of Moore’s law, however,does not mean a total pause in new product hype. It does not mean that virtual reality headsets, the internet of things, and artificial intelligence are all smoke screens. What it does mean, however, is that technological drivers will switch away from mere computing horsepower and focus their attention elsewhere, such as on more clever software design.

Despite 50 years of staggeringly increasing computing brawn, commensurate development in software has taken a back seat. The temptation to rely on hardware’s brute force to mask inelegant software design had been too strong. A prime example is in the area of artificial intelligence.

Until very recently, computers required programmers to write instructions. Computers generally do not learn autonomously; they follow rules. However, Google has showed that machines can learn on their own. When its programme AlphaGo trounced Chinese Go grandmaster Ke Jie earlier in May, Ke took note of his opponent’s unique and sometimes transcendent style of play: “AlphaGo is improving too fast. Last year, it was still quite humanlike when it played. This year, it became like a god of Go.”

The all-powerful AlphaGo was made possible because of “deep learning”, a software design approach that mimics the working of neurons in the human brain. Google’s software engineers have figured out how to “reward” a programme in the form of higher scores when the algorithm achieves the desired outcome. AlphaGo then writes its own instructions randomly, generating many instructions on a trial and error basis and replacing lower scoring strategies with those higher scoring ones. That is how an algorithm teaches itself to improve, without constant human supervision.

When a product’s performance is improved beyond a singular dimension, as historically dictated by Moore’s law, roles and responsibilities blur. Software firms are enticed to dabble in hardware, and hardware makers create, in turn, niche products. Facebook and Amazon are already designing their own data centres, Microsoft has started making its own chips, and Intel is now jumping into virtual reality technologies. Unlike in the innocent era of desktop computers, we will no longer have the dominant architecture of Windows and Intel. Gone will be the existing industry order. And so, in the age of cloud computing, artificial intelligence, and the internet of things, choices and competition will proliferate.

The death of Paul Otelini will always remind us ofa simple, innocent world that we will dearly miss.

Howard Yu is professor of strategy and innovation at IMD

Former Intel chief will be missed at a time when existing industry order is giving way to greater competition

Otelini death reminds us of simpler world

When a product’s performance is improved beyond a singular dimension, as ... dictated by Moore’s law, roles and responsibilities blur

Howard Yu