LG trying hard to get out of hole

Pinch hitter CEO shows no power

By Yoon Ja-young

LG Electronics announced Tuesday that it will nurture a competitive workforce in the software sector, adding that CEO Koo Bon-joon awarded the 14 best employees in the research and development (R&D) sector with a plaque stating “software architect” last week to encourage them.

“The competitiveness of software is our future growth engine,” Koo said at the ceremony. However, analysts are reacting negatively to the event, saying Koo lacks substance.

Koo as pinch hitter

When Koo, the younger brother of LG Group Chairman Koo Bon-moo, took control at LG Electronics in September last year, there were many expectations from the owning family.

His predecessor Nam Yong had shown the limitations of a hired CEO, tending to focus on short-term achievements. Analysts often say he focused on cutting costs and didn’t invest sufficiently in R&D. He lacked in building up a management strategy for the long-term perspective.

“The firm was making money on feature phones and management lacked the capability or will to look ahead. It was too slow entering the smartphone sector,” one analyst pointed out.

Even after entering the arena, LG made a series of bad decisions. An analyst said LG should have been more careful in making decision. “While other global handset manufacturers focused on one-chip solutions, LG Electronics developed phones with multiple chips. For the small resources it has, the company should have focused on one chip, but it went in the opposite direction from the beginning. Its control tower was dead. The internal monitoring system didn’t work as well as it should.”

Koo makes little change to LG

Upon his inauguration, Koo pledged to change LG Electronics from the bottom up. But the company is continuing to struggle. Standard & Poor’s lowered its corporate credit rating to BBB- from BBB. Moody’s also changed its outlook to negative from stable, followed by a downgrade by Fitch on Tuesday. LG made a loss again in the third quarter.

When asked whether LG Electronics seems to have changed since Koo’s inauguration, most analysts were skeptical.

LG Electronics’ lax corporate culture is hindering it. Samsung Electronics, once LG’s rival, was dealt a blow by the iPhone but quickly launched its Galaxy handsets. It poured in resources to smartphones and succeeded in becoming a rival of Apple. Slow decision making doesn’t fit the smartphone business where everything changes in a few days.

“An aircraft carrier can’t change direction as easily as a sailing boat,” Koo said in January. As the CEO said, it is difficult to change a huge business like LG, but it needs to do so. Koo has a huge task to keep LG as one of the two big pillars of the country’s electronics business along with Samsung.