Samsung’s Failed Executive Leadership

Being the top leader of an organization, whether in the public or private sphere, is no easy task. What’s more appropriately called executive managerial leadership (as opposed to the overused, feel good term “leadership”), those at the helm of companies or government agencies have huge responsibilities. The context and inner workings of companies versus the public sector is quite different. However, top executive leaders in both areas face unrelenting change caused by technology advancement, demographics, consumer-citizen evolving needs and wants, legislated regulation, geo-political events, climate change—just to list a few key change drivers.

When mistakes happen, especially big ones that may endanger the health and safety of the public, the proverbial buck stops at the desk of the individual leading that organization.

Recently, South Korea’s huge Samsung Electronics Corporation has been in the news—big time. The Samsung fiasco with the exploding Galaxy Note 7 smart phone has been an eye-popping exercise in incompetent management from the top. The seriousness of the problem is exemplified when consumers have to return their phones in fire resistant bags, a first in mobile phone history.

Samsung Electronics is a major manufacturer of lithium-ion batteries, semi-conductors, chips, and hard drives for such well-known companies as Apple, Nokia, HTC and Sony. And of course, it’s a dominant player in the consumer arena, producing TVs, laptop computers and cellular phones.

That Samsung Electronics (370,000 employees in 80 countries) told consumers to return their Galaxy Note 7s when the problem arose may sound like competent senior management. Except that the problem continued with the replacements. As one commentator on BBC America put it, the problem is likely due to the controller in the phone which is overcharging the lithium-ion battery, which have a tendency to explode when overcharged.

The bizarre thing is that Samsung’s top executives delayed in going public to apologize. Indeed, there was a certain degree of bumbling in communicating to the public. The top executives in South Korea left the task to mobile communications division president Dong-jin Koh to issue an apology many weeks later, head bowed to the South Korean press (below photo).

Finally, Samsung declared 40 days after first reports of exploding Note 7s that it would cease production. However, the company was still bumbling along on how consumers were to return their smart phones. Airlines didn’t want them on board, officially banning them by mid-October. And no top Samsung Electronics executive has gone to North America to issue an apology to their customers. One would think that, given the magnitude of the disaster, the CEO would have actually flown to the United States to demonstrate visible corporate leadership.

As it is, Samsung faces huge losses, $5.5 billion and counting; very serious brand erosion; and consumer flight to other Android smart phone producers and Apple. The Christmas shopping season is about to commence.

Samsung’s pushing out the Galaxy Note 7 was seen as its attempt to beat Apple to market with its own iPhone 7. With haste comes risk and increased likelihood for mistakes. Given Samsung’s engineering and workaholic culture, it’s a shame that the company pushed aside quality control and safety for the prize of beating Apple to market with a new version of a smart phone. Now it will pay the price.

Concurrent with the Galaxy Note 7 fiasco, Samsung has been having problems with its washing machines which have been reported to vibrate out of control and blast through walls. A federal class action lawsuit has been recently launched in the United States.

The most cited instance of effective executive managerial leadership during a consumer crisis involving health and safety is Johnson & Johnson’s handing of its Tylenol brand in September 1982 when an unknown number of its product was deliberately contaminated with potassium cyanide. Seven people, including a young boy, died from the poisoned capsules. J&J immediately took action, recalling 31 million Tylenol bottles. A few contaminated capsules were found as a result of the recall, and fortunately no further deaths occurred. The perpetrator was never arrested.

At the time of the event, J&J controlled 35% of the market; immediately after the deaths and recall its market share plummeted to 8%. However, following a public apology from CEO James Burke, and after a year of $100 million in investing in more safety procedures with its Tylenol brand, J&J’s market share shot back up. (Burke, who died in 2012 was awarded the Medal of Freedom from President Clinton in 2000.)

Doing the right thing in a moment of crisis is what separates top notch corporate leaders from the rest of mediocrity. It can be painful, in terms of a company having to go backwards before it can go forward to grow again. And losing face is often a problem for humans. But acknowledging immediately that mistakes were made, that the health and safety of consumers is what’s truly top priority, that the company apologizes without reservation, and that an effective action plan is being initiated will move a company forward.

Management is doing things right. Leadership is doing the right things.
– Peter Drucker