Arrest of Samsung scion could throw company into disarray

Vice-chairman Lee is accused of bribery involving Ms Park and her confidante Choi.
Vice-chairman Lee is accused of bribery involving Ms Park and her confidante Choi.

Court hearing today to decide on prosecutor's request for warrant

SEOUL • The long-orchestrated plan to cement Mr Lee Jae Yong's position atop Samsung Group may put him in jail instead, raising questions about who would step in to run South Korea's biggest conglomerate in the aftermath.

Prosecutors are seeking Mr Lee's arrest on allegations including bribery and embezzlement, which if proven could prompt him to relinquish duties at the family business.

After spending years following his father's footsteps to the chairman's seat of Samsung Group, Mr Lee is trying to avoid the missteps that triggered his father's two criminal convictions.

Even if the accusations against him involving South Korean President Park Geun Hye are proven in court, it is still possible Mr Lee could return to the company later or even call the shots from behind bars, just as executives from Hyundai Motor and SK Group have done.

"Chaebol (conglomerate) executives have a history of managing from the jail, whether it be via lawyers or secretaries visiting them," said Dr Lee Kyung Mook, a professor at Seoul National University's Graduate School of Business.

Samsung declined to comment when asked about a potential leadership vacuum.

 

A court hearing is scheduled for today to determine whether to approve the prosecutor's request for an arrest warrant.

Whether the warrant is granted or not, prosecutors would continue their probe, with a possible indictment coming later.

Mr Lee testified last month that he never ordered donations to be made in return for political favours.

Mr Lee's potential arrest in the scandal surrounding President Park is another calamity for the vice-chairman of Samsung Electronics, the largest maker of mobile devices.

Last year, the company pulled its Galaxy Note7 smartphone off the shelves because some devices burst into flames.

The debacle cost Suwon-based Samsung an estimated US$6 billion (S$8.5 billion) and a competitive advantage before Apple released its iPhone 7 models.

Mr Lee, 48, has had trouble matching the success of his father, Mr Lee Kun Hee, who transformed Samsung Electronics from a copycat appliance-maker into a global powerhouse in TV sets, smartphones and memory chips.

The elder Mr Lee - South Korea's richest man - suffered a crippling heart attack in May 2014, and Samsung shares fell that year and the next before recovering last year.

"It's a perilous practice that a person can take over a company just because he or she was born to a successful father," opposition lawmaker Park Yong Jin said. "The biggest problem with our economy is that people with unproven skills run its biggest companies."

Mr Lee doesn't play the role of day-to-day manager, depending rather on co-chief executives and other top managers to handle those responsibilities.

But employees and shareholders depend on him to provide strategic guidance when it comes to decisions like the next big bets in technology or potential acquisitions.

After the elder Mr Lee's collapse, executives including Mr J.K. Shin, who is in charge of the smartphone division, handled daily operations for Samsung Electronics.

The son became de facto leader of the group, which then embarked on an intricate reorganisation to solidify his control.

Prosecutors want to know if that effort involved making payments to a presidential confidante - Choi Soon Sil, now on trial for coercion and abuse of power - in exchange for government support.

In the meantime, Mr Lee Jae Yong may miss the window of opportunity to succeed his father as Parliament moves to make it harder for Samsung to use its own shares to help him consolidate control, said Mr Heo Pil Seok, CEO at Midas International Asset Management in Seoul. That could make the stock more volatile.

Mr Park submitted a Bill nicknamed the "Jay Y. Lee Law" to prevent financial firms from supporting the types of internal mergers orchestrated to help Mr Lee boost control.

"The corporate governance at Samsung could remain awkward for an extended period of time, and that would increase uncertainties," Mr Heo said.

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A version of this article appeared in the print edition of The Straits Times on January 18, 2017, with the headline 'Arrest of Samsung scion could throw company into disarray'. Print Edition | Subscribe