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Bon Koo, CEO LG Electronics
LG Electronics
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Bon Koo


CEO, LG Electronics


Age:
Years as a CEO:
Tenure: 0
Industry: Manufacturing & Industry



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CEO DOSSIER

When Koo became CEO of LG Electronics in 2010, he inherited a struggling company, whose mobile and television divisions were in drastic decline. Has he been able to reinstate the company as a global competitor to rival Apple and Samsung, and as a profit-making enterprise? 

early years
Koo graduated from South Korea's leading university, Seoul National University, in 1978 with a BSc in Computer Science and Statistics, and then continued on to the University of Chicago's business school, where he graduated with an MBA in the early 1980s. After a brief stint working at AT&T in the U.S., he returned to South Korea to join the LG Group. Koo is the grandson of it's founding member, In-Hwoi Koo, and the younger brother of it's current chairman, Bon-Moo Koo.

Koo's early career is marked by his innovation and management of the joint venture, LG.Philips LCD (now operating under the name LG Display) between 1999 and 2006. It is reported that upon taking the job Koo encouraged his employees to adopt the motto “Let's Become No.1”, and when they had achieved this goal, “Let's Keep Our No.1 Title”. By securing a large and risky investment in LCD technology ahead of it's rivals, Koo is credited with paving the way for LG Display to be a global leader in its field. 

Some have suggested that this eye for spotting trends in the technology market was a factor in his promotion to Vice Chairman and CEO of LG Electronics in October 2010, when the previous incumbent resigned, having failed to recognise the evolution of the smartphone. Before taking the post Koo had served in the same offices for the LG International division.



As ceo
When Koo became CEO of LG Electronics, he was tasked with turning around the fortunes of its ailing mobile business. Nam Yong, who quit after the company reported a record loss, and warned of a similar loss in the following quarter, is thought to have misguidedly focussed on products that were “pretty but not smart”, resulting in large losses to rivals such as Apple and Samsung. 

Koo's initial action as CEO was to continue the managerial reshuffle of LG Electronics, replacing the heads of the struggling handset and TV divisions. He then shifted the focus of the company on to research, cutting the portion of unprofitable phone models, to focus on developing their own smartphone range. The Korean press reported that Koo had moved the division’s offices from central Seoul, to Gasan-dong, where the research and development centre for mobile devices is located. He also changed the management's working hours, so they were aligned with those in production. In September 2011 Koo's plans to restructure the mobile division, by reducing marketing staff and adding researchers, were revealed in the press; the Maeil Business Newspaper referring to some 1000 jobs that were to be re-aligned.

In January 2011, at the Consumer Electronics Show in Las Vegas, Koo spoke of his aims in a rare, but brief, interview with the Korean press. He said: “The essential competitiveness of a manufacturing company is based on research and development, production capability and product quality, and I think our biggest problem is that we allowed to let these foundations crumble in past years.” He commented directly on the strategy of his predecessor: “The former CEO tried to build this company into a marketing-driven company, and so that has become a new strength for us, but I am an old-school person who cares about the quality of products we are making.”

Koo's vision of technology leadership, moving away from a marketing and branding oriented strategy, inspired initial hope. LG Electronic stocks were up 30% by November 2010, on the previous year. However a year later, in November 2011, LG's handset business had experienced losses for six consecutive quarters, totalling nearly $873.2mil. Koo had maintained that “things won’t get better for us overnight ? it takes longer to turn the direction of an aircraft carrier than it is with a sail boat” and continued with his strategy. 

At the end of 2011, Koo placed more shares on the market, in order to inject $945mil cash into the revival of the business. The move caused shares (already down more than 40% that year) to plummet 14% - the biggest daily fall in more than three years, wiping out around $1bil from the company's market value. It also drew attention to the company's cash flow problem. As S.J. Lee, a fund manager at Midas Asset Management commented: “Buying a rival with either deep patent pools or research staff is another option to quickly boost its growth. But LG's not got much cash reserve to fund such deals”. In the meantime slow-recovery has generally left analysts disappointed. 

Koo experienced some success in 2012. In 2011 the TV division had been faring badly along with the mobile business, reporting a 122bil won (Korean currency) loss in comparison to a 99bil won profit in 2010. With both divisions struggling on a thin profit margin, home appliances were the only major cash generator. However in April 2012 LG Electronics more than trebled its quarterly profit to $393mil; commentators citing improved margins and a pick-up in high-end TV sales. Kim Ji-san, an analyst at Kiwoom Securities, said: “It's clearly benefiting from new product releases in the high-end sector with 3D sets, and gaining market share from struggling Japanese rivals.” 

Better margins on mobiles have also helped this progress, improving from 0.4% to 1.3% at the end of 2011, as LG aggressively cut costs. However handsets remain LG's biggest battle. Koo is still optomistic: “Smartphones are basically a business-to-business market, and this means that our crumbled reputation in mobile devices will need more time to recover. There isn’t much room to squeeze in immediately when buyers have already chosen the products of our rivals, so it would be important for us to establish a niche market first. The speed of our recovery will depend on whether that niche market would be a high-end segment or a lower-end segment, and our ability to build better products and provide them at a cheaper price will be key”. With personal projections of annual sales increasing by 51% to 40 million units, up from 26.5 million in 2012, the company entered 2013 optimistically. Analysts were a bit more cautious.

Away from work
Bon-Joon is married with two children. He is said to be fluent in both Japanese and English, in addition to his native South Korean, and oversees formal meetings in the foreign languages. An avid baseball, Bon-Joon owns the LG Twins, a professional Korean baseball team.

Leadership and philosophy
Koo is known for his aggressive strategy:
“You can say that LG’s corporate culture had been soft, but I’m changing that. I requested that our employees be stronger, aggressive, even bitter.”

Koo picked a new slogan for the staff of LG Electronics:
“fast, strong, smart”: “I love slogans ? the manufacturing business will always require strong leadership, and no strong leadership could exist without slogans (to get the message across)”. He explained the current slogan: “‘Fast’ defines how we should be in planning and producing new products, ‘strong’ stands for the tenacity we need in executing our jobs, but we can still be ‘smarter’ in the way we do it.”

Koo has been criticised for a lack of interaction with the media. According to an un-named industry official: “As CEO, Koo should meet the media to clarify speculation surrounding the company. LG always has a frustrating sense of passiveness, so this isn’t surprising.”

Our Three Questions
1. Would it be better to sell the mobile division and focus on more successful enterprises, rather than ploughing more money into a business that could be unprofitable for an indefinite number of years? Can you ever catch up with Samsung?

2. Why do you feel it is an advantage to reduce foreign executives and input, and focus on management by Koreans? 

3. In what way does your status as a member of the founding family strengthen your leadership of LG Electronics and its staff?

Colleagues, Friends & Analysts' report
Park Kang-ho, an analyst at Daishin Securities:
“As a member of the group’s founding family, he will become a much more powerful CEO with a lot of influence over the whole group. He is in a better position to draw the company’s long-term growth picture.”

John Sung and Yonghi Li, analysts at Credit Suisse:
“Unlike many on the street, we believe the extent of 2H11 handset turnaround could be very limited.”

A fund manager at HI Asset Management:
“We sold off LG stock a couple of months ago due to its poor handset business prospects and don't have any plan to add it back any time soon.”

S.J. Lee, a fund manager at Midas Asset Management: "There's not much LG can do in the near term to dramatically turn around the dire situation. It should instead focus on restoring investor confidence that it can deliver attractive models and make it profitable longer term. That momentum building will boost its share price.”

Harrison Cho, analyst at KB Investment & Securities:
"Selling the loss-making business is probably what investors want, but even with that option, LG wouldn't get much from the sale. They should have sold it long ago before the overall landscape got tougher. They simply missed the boat.”

Date Written
07-05-2013
Sources
Forbes
Korea Times
Korea JoongAng Daily
LG.com
Reuters
The Times
Wall Street Journal
Forbes
Korea Times
Korea JoongAng Daily
LG.com
Reuters
The Times
Wall Street Journal
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Financials
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LG Electronics Inc., together with its subsidiaries, produces and sells consumer electronics, mobile communications, and home appliances under the LG name worldwide. It manufactures home entertainment products, such as LCD and plasma televisions, LED and LCD monitors, home theatre systems, Blu-ray Disc players, audio components, video players, plasma display panels, 3D smart TVs, pentouch smart TVs, ultrabooks, TV upgraders, professional displays and hospitality TVs, laptops, projectors, car audio systems, and security systems. The company also offers mobile communications products comprising smartphones, Android phones, touch screen mobiles, multimedia phones, dual sim mobiles, and basic mobile phones. In addition, it provides home appliances consisting of washing machines, dishwashers, refrigerators, freezers, convection ovens, cooking appliances, vacuum cleaners, built-in appliances, water purifiers, and air purifiers. Further, the company offers heating, ventilation, and air conditioning, as well as energy solutions, such as residential air conditioning, system air conditioning, LED lighting solutions, and building management systems. LG Electronics Inc. has strategic alliances with PRADA, GE, Schneider, SIEMENS, Toyota, Qualcomm, Hitachi, Mark Levinson, Nortel, Microsoft, Intel, Google, Yahoo, SUN, Dolby, Adobe, H.G. Ibrahim Shaker, Arcelik, and Symbian. The company was formerly known as GoldStar and changed its name to LG Electronics Inc. in 1995. LG Electronics Inc. was founded in 1958 and is headquartered in Seoul, South Korea.

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