Samsung 'open to foreign influence' without its heir

The logo of Samsung Electronics in Seoul, South Korea, on July 4, 2016.
The logo of Samsung Electronics in Seoul, South Korea, on July 4, 2016. PHOTO: REUTERS

SEOUL • Foreign stakeholders may expand their intervention in management decisions at Samsung Electronics after its vice-chairman Lee Jae Yong was sentenced to five years' jail, market watchers told Yonhap news agency.

After a six-month trial over a scandal that brought down Park Geun Hye, the country's president at the time, a court ruled on Friday that Lee Jae Yong had paid bribes in anticipation of favours from Park.

Yonhap reported that foreign investors who collectively hold more than 50 per cent stake in Samsung Electronics, the world's largest smartphone manufacturer and flagship subsidiary of Samsung Group, may demand the firm's board of directors be replaced, an industry insider said. "A prolonged leadership vacuum at Samsung Group, the country's biggest conglomerate by assets, could cause overseas speculative forces to exert influence of key management decisions," he told Yonhap.

In 2015, US hedge fund Elliot Management filed for an injunction against the merger of two Samsung units designed to cement a power transfer to Lee Jae Yong, the heir apparent of Samsung Group, from his ailing father Lee Kun Hee.

Last year, Elliot, which owns a 0.62 per cent stake in the Korean chipmaker, called on Samsung Electronics to split itself into two units - a holding company and an operating firm - and list the latter on the tech-heavy Nasdaq market.

The guilty verdict immediately removes the public face of Samsung, which could make it harder for the company to do business in some cases, according to professor of management Paul Swiercz at George Washington University.

"It will be more difficult for Samsung to negotiate the transnational deals with its present and future global partners," Prof Swiercz told Bloomberg.

The ruling, said Korea Herald, will be a test of whether Samsung Group can keep its top global status without its heir.

It is expected to prepare for a long-drawn leadership vacuum, industry watchers said yesterday. "The absence of Lee must now be seen as a constant instead of a temporary situation," an observer told Yonhap.

He said that Samsung may move to a "remote control" setting with the vice-chairman making key decisions from his prison cell.

Samsung Electronics vice- chair Kwon Oh Hyun has been representing the firm at key events, although his authority has never been clearly defined.

An official from the business community said Mr Kwon was "expected to contribute to minimising the leadership vacuum for the time being".

Mr Kwon is currently leading the semiconductor division, the most profitable sector of the electronics unit. He has been spearheading the Samsung affiliates since Lee Jae Yong was detained in February, reported Korea Herald.

The Samsung heir has returned to a detention centre in Gyeonggi province, where he had spent the last six months in detention, to appeal his case.

The prosecution, which had demanded a 12-year jail sentence, has vowed to seek a more severe penalty in the appeals court.

A version of this article appeared in the print edition of The Straits Times on August 28, 2017, with the headline 'Samsung 'open to foreign influence' without its heir'. Print Edition | Subscribe