Samsung Office Equipment

Samsung Heir Given Five-Year Sentence in South Korean ‘Trial of the Century’

Even the de facto heir of Samsung, Lee Jae-yong, could not avoid the consequences of the far-reaching corruption scandal that lead to the impeachment of former South Korean president, Park Guen-hye. In a historic conviction, Lee has been sentenced to a five-year prison term, indicating as the New York Times puts it, “South Korea is no longer willing to offer its business leaders political impunity in exchange for untrammeled economic growth.”

As reported by the Washington Post, Lee and four other Samsung executives were found “guilty of paying bribes totaling $6.4 million, including paying for equestrian training for the daughter of Choi, the former president’s confidante. […] The three-judge bench also found Friday that Lee had embezzled corporate money for personal gain in using Samsung funds to ensure that a merger that would cement his grip on the conglomerate was approved, then lied about it.”

Lee’s lawyers are pursuing an appeal but despite South Korea’s history of pardoning Samsung leaders, the current administration is taking a hard line in “cutting off businesses’ close relationship to the government that has held [South Korea] society back.” There may be some hope for Lee, considering that his current sentence is far less than the 12 years that prosecutors originally sought. Lee’s lawyers are confident that his innocence will ultimately be affirmed by the Supreme Court, likely in the next year.

What Does This Mean for Samsung?

In the short-term, it will likely be business as usual. According to BBC News, copier has “three co-CEOs in place running the management team, and that it will endeavor to lead its operations without disruptions and will find a way to minimize the impact of the legal proceedings.”

[UPDATE: This has since been complicated with the October 13th announcement that vice chairman and CEO, Oh-Hyun Kwon, is stepping down. Kwon has reportedly been Samsung’s de-facto chief since Lee’s imprisonment.” In a letter to Samsung employees, Kwon states, “I believe that time has now come for the company [to] start anew, with a new spirit and young leadership to better respond to challenges arising from the rapidly changing IT industry. Now the company needs a new leader more than ever.”]

There is also a precedent for South Korean businesses successfully run from behind bars. The New York Times cites the imprisonment of the chairman of SK Group, who “had nearly 1,800 visitors during more than 500 days in jail, far exceeding official guidelines.” Chang Sea-jin, a professor at the National University of Singapore states that Lee “still has controlling power, even though he’s in jail. He can fire any chief executive, and the professional managers should have to keep reporting to him.”

However, Lee’s main role in Samsung leadership was less the day-to-day management than providing the long-term vision for the whole of the massive conglomerate. As BBC News reports, “Lee’s role was about developing future businesses and nurturing relationships with global clients. He was always given the most difficult clients to manage because he always had a deeper understanding of the company’s future path. Lee knew where Samsung needed to go and he wanted to help it get there – these are skills that you can’t just step in and replace right away.”

According to Reuters, “Some investors worry a prolonged leadership vacuum could slow decision-making at the group, which has more than five dozen affiliate companies and assets of 363.2 trillion won ($322.13 billion).” But South Korea’s new liberal president Moon stated that he didn’t believe Samsung’s success hinges on Lee. “When Lee was taken into custody, the share prices of Samsung went up,” Moon said. “If we were to succeed in reforming the running of the chaebols and also increasing transparency, I believe this will not only help the economic power of Korea but also help to make the chaebols themselves more competitive.”