(Bloomberg Gadfly) -- The events of the past few months have been a baleful reminder that, despite their antiquated nature, hereditary monarchies have advantages over more meritocratic systems.
No, we're not talking about anything going on in Washington -- it's Seoul that's putting ruling houses in a good light.
Since being appointed to Samsung Electronics Co.'s nine-person management board last October, the chairman's son and heir Jay Y. Lee has been interrogated by prosecutors and cross-examined by lawmakers probing influence peddling with another local dynast, South Korea's now suspended president, Park Geun-hye.
Despite prosecutors announcing plans to seek his arrest on bribery and embezzlement claims Monday, Samsung's shares are up 19 percent since his 2016 elevation.
That obliviousness is actually a good thing. By sending Samsung's stock north in spite of the vice chairman's legal problems, shareholders have signaled that the real genius of the company lies not in its gilded executives, but in the teams of designers, engineers and product experts who will endure any palace intrigue.
That distinction is written deep in the company's DNA. Whereas western companies are typically run by a centralized executive kept in line by the wise senatorial heads in the boardroom, Samsung operates a form of constitutional monarchy. Lee's father, Chairman Lee Kun-hee, has the unwritten power of a sovereign but uses it sparingly, operating through his cabinet in the form of the company's board. The chief executive role, far from enjoying preeminence, is split between no fewer than three individuals who form a kitchen cabinet-style management committee.
That collegiate structure doesn't make Lee expendable, though. Indeed, his very replaceability is what makes him -- or someone like him -- paradoxically indispensable to the company as a whole.
Much of Samsung's success has come from its decentralized structure, which has allowed it to be nimble in shifting from market to market in pursuit of an advantage.
Until 2011, the company still made the largest share of its revenue from selling home appliances like refrigerators and washing machines; phones were its number-three division by revenue as recently as 2006.
Semiconductors made up the biggest slice of operating income until telecommunications took over in 2007, the year the iPhone was launched. After eight years in which phones led the field in all but one fiscal year, they've been back on top again since 2015.
As Gadfly's Tim Culpan argued last week, Samsung's financial core plays a valuable role in making these shifts from product to product, helping the company set long-term strategic priorities and deciding which divisions to favor in allocating capital.
The company's nimbleness in spotting the next trend is greatly enhanced because decision making isn't beholden to any party or faction -- but that quality is notably lacking in the three courtiers on the management committee. Kwon Oh-hyun, head of the semiconductor business, has spent more than three decades in that division, while his co-chief executives J.K. Shin and Yoon Boo-keun are equally associated with smartphones and appliances and displays, respectively.
That's a good reason to favor Jay Y. Lee's sister Lee Boo-jin, who currently heads up Samsung Group's hospitality business, Hotel Shilla Co. Such a move would certainly entrench the power of the ruling family, but it would also mark a welcome break from the traditionally male-dominated culture of Korea's chaebol.
Samsung's king Lee Kun-hee and his prince regent may still be around. But if the former's health problems and the latter's legal troubles remove them from their top roles, it's time for the company to adopt a new motto: Long live the queen.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.
To contact the author of this story: David Fickling in Sydney at dfickling@bloomberg.net.
To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net.