[News Focus] Fate of Samsung, heir hinge on ‘trial of the century’

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With the court ruling on Samsung’s de facto chief scheduled for Aug. 25, questions are being raised over not only the fate of the billionaire himself, but the future of the conglomerate as well.

The prosecution on Monday demanded Samsung Electronics Vice Chairman Lee Jae-yong be sentenced to 12 years in jail for his alleged role in a bribery scandal that saw the nation’s president impeached.

Lee is facing the harshest criminal sentence ever sought against a chaebol leader. His father, Chairman Lee Kun-hee was convicted twice but received presidential amnesty soon after and was never detained.

Lee Jae-yong (Yonhap)

Lee is accused of bribing a longtime friend of former President Park Geun-hye to lift a regulatory hurdle to him increasing his control of Samsung Electronics, the world’s biggest producer of smartphones and memory chips.

In contrast to Lee‘s unexpected tenure at a detention center in Seoul since February, the state of Samsung Electronics has never been better.

In the second quarter, the crown jewel of the conglomerate was set to become the most profitable company in the world, beating Apple for the first time. The share price of Samsung Electronics has surged 32 percent this year.

Samsung’s earnings surprise, however, raised questions about whether Samsung really needs Lee and whether his absence genuinely increases management risks to the tech giant.

“(If found guilty) it would tarnish Samsung’s image as the global tech powerhouse and sap the morale of Samsung employees, but in terms of business, (an effect would be) less likely,” said Chung Sun-sup, CEO of Chaebol.com.

“Lee Jae-yong was on his way to the leadership but never had the absolute power his father had. (Recent) decisions were made not by himself alone, but with other executives,” Chung said, adding that Lee himself was on trial and it was difficult to tie Samsung itself to the case.

But others have pointed out that the absence of Lee could mean slower decision-making in an era when industries are rapidly changing.

If found guilty, Lee’s path to the throne of the tech empire would most likely be blocked, while the absence of the 49-year-old heir would also be unprecedented for Samsung, which has never operated without the control of the ownership family since it was created three generations ago, said Park Ju-gun, CEO of CEOScore, a local corporate tracker.

“If the court rules in favor of the prosecution’s request, Samsung could suffer in terms of the speed of its growth without a top decision-maker. (Putting him in jail for years) would disrupt its expansion strategy through mergers and acquisitions, as there would be no one who could make fast and ultimate decisions,” said Park.

Samsung’s thriving semiconductor business is the outcome of years of Samsung’s investment in research and development, led by Lee’s bedridden father, Lee Kun-hee, Park added. The speed of technological development has now become too fast to follow, leading Samsung to shift its strategy from spending money and time to nurture its own technology to acquiring budding enterprises around the world with creative ideas, similar to the strategies of software giants like Google.

Lee Jae-yong (Yonhap)

“Lee has known about what role he has to play in the fast-evolving era of technologies, that it is much better to acquire small firms with ideas in order to stay on top. Without him, even though Samsung has CEOs in each affiliate, it would be difficult to make fast decisions.”

Dubbed the “trial of the century,” the case has been drawing tremendous attention, with prosecutors calling it a chance to end decades-old cozy relationships between politicians and corporations. Lee and other Samsung executives indicted in the bribery case have denied all allegations, saying the heir was a victim to the ex-president’s unilateral demands, fearing political revenge.

The case centers on the controversial merger between Samsung C&T and Cheil Industries in 2015. The merger was opposed by a group of investors led by Paul Elliott Singer, but was approved after the state-run National Pension Service supported the plan, despite warnings it could inflict financial damage to the pension operator that manages money collected from South Korean workers.

The alleged crimes were meant to help Lee maintain control over Samsung without having to pay billions of dollars in inheritance taxes, prosecutors said.

At Monday’s hearing Lee repeatedly denied allegations as he choked back tears, saying he was the only one to blame ethically for the fiasco that he caused through his secret meetings with ex-President Park.

“If I fail to resolve this misunderstanding, I would not be able to represent Samsung as an entrepreneur,” he said in his final testimony.

Park of CEOScore noted that this final testimony highlights that Lee would never let go of the management control his family has held for three generations.

“For generations, every legacy they build was to keep Samsung under Lee family control. Even if he is found guilty, he would never let it go.”

By Cho Chung-un (christory@heraldcorp.com)

 

Source  :  The Korea Herald

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