Samsung's "prince" was sentenced to criminal punishment may be South Korea's financial crisis to be solved
Reporting from Shanghai, journalist Shao Shaohui brings us the latest developments. On August 25, the South Korean court handed down its first-instance ruling, sentencing Samsung Vice President Lee Jae-woon to five years in prison for charges of bribery involving former President Park Geun-hye and her close associates. Initially, the prosecution had filed five charges against Lee Jae-woon, primarily centered around bribery, and had sought a 12-year prison term. However, the court found all five charges to be valid but opted for the lesser sentence. On August 28, the defense team for Lee Jae-woon appealed the verdict.
There is a possibility of a pardon.
Gao Wei, Director of the Global Family Business Research Center at Tsinghua University's Wudaokou Finance School, told reporters from the 21st Century Business Herald that Lee Jae-woon’s case is particularly noteworthy. Many of South Korea's top executives have received special treatment when facing jail sentences. For example, Lee Jae-woon's father, Lee Jae-yong, was previously indicted and sentenced in 1996 and 2008, but both times he avoided imprisonment due to presidential pardons. Additionally, Kim Yu-chung, the founder of Daewoo Group, Zheng Mengjiu of Hyundai Motors, SK Group Chairman Choi Tae-young, and former Sage Group President Lee Jae-sik were among others who served time but were eventually granted amnesty.
Gao Ke believes that South Korea's industrial policies during the financial crisis placed significant emphasis on large conglomerates like Samsung, whose economic clout is unparalleled in the country. Compared to other chaebols, Samsung stands out globally, which is quite remarkable for a Korean company.
"Moreover," Takasu added, "the dramatic shifts in Korea's domestic political landscape have provided a critical political backdrop for the granting of pardons to these conglomerate executives. If Samsung's growth slows down, it could impact South Korea's economic growth and the livelihoods of many citizens, leading to new political demands."
The absence of leadership.
On the day of the verdict, August 25, Samsung's stock price dropped by 1.43%, and Samsung Group's core subsidiary Samsung Electronics saw a drop of 2.95%. By August 28, Samsung Electronics continued to fall by 1.96%, while Samsung properties dropped by 3.37%.
Industrial economist Liang Zhenpeng told the 21st Century Business Herald that the court's decision dealt a severe blow to Samsung. Besides the stock price decline, the company's brand reputation and the trust of its upstream and downstream partners have also been severely affected. Furthermore, despite having professional managers running the company, the absence of an actual leader has a negative impact on strategic decision-making and major investment plans.
Liang Zhenpeng also noted that Samsung Electronics is currently facing numerous challenges in its own operations. "While Samsung remains competitive in the core components of mobile phones—such as chips, flash memory, and screens—it is losing ground in the smartphone segment." Liang believes that in China, brands like Huawei, OPPO, and VIVO are surpassing Samsung, and globally, Samsung's influence is being challenged.
Regarding the Note7 spontaneous combustion issue, Liang Zhenpeng considers this not an isolated incident but rather the culmination of long-standing problems within Samsung's mobile division. "Samsung has unresolved technical weaknesses," he said, "which are the consequences of neglecting these issues during its smartphone expansion." Liang believes that the current leadership vacuum at Samsung is exacerbating these issues.
Gao Shuo analyzed the negative impact of Lee Jae-woon's case on Samsung's family business succession. He pointed out that "succession is the most vulnerable period for family businesses, filled with uncertainties and risks. Samsung's Note7 incident is closely tied to the leadership void during this transition period." Gao Yu elaborated: "At a critical juncture of leadership change, the sole male heir, Lee Jae-woon, failed to assume the responsibilities of the president, significantly harming Samsung."
Short-term impact is limited.
Regarding Samsung Group's future, Gao Yu remains optimistic. He explained that Samsung's talent pool, financial stability, and industrial layout are robust. "Besides Lee Jae-yong, the eldest son of Lee Jae-yong's father, there are two capable daughters, Lee Fu-zhen and Lee Shu-xian, who are expected to play key roles in the family business. China also plays a crucial role. Moreover, Samsung Group's professional managerial team will continue to contribute significantly."
Gao Hao believes that unlike his father, Lee Jae-yong's leadership style leans toward decentralization and empowerment. In recent years, he has focused on major strategic decisions like Samsung Group's new strategic planning and industrial layout, including entering the biopharmaceutical sector and divesting non-core businesses. Meanwhile, the day-to-day operations are managed by Samsung's strategic planning teams and professional managers across various sectors.
Gao Hao emphasized that when analyzing the impact of Lee Jae-woon's imprisonment on Samsung, it is important to note that Samsung's management team is not reliant on a single individual but operates as a cohesive unit, differing significantly from the U.S. model that heavily depends on a CEO.
"Samsung places great importance on talent development and has a deep pool of skilled professionals." He added, "Additionally, the new strategic layout is largely complete, ensuring Samsung Electronics and existing industries maintain their edge. With pharmaceuticals emerging as a key strategic focus for the next phase, the short-term impact of this shift is minimal given the already established strategic direction."
The chaebol reform.
The South Korean presidential office, the Blue House, stated that the verdict presents an opportunity to sever ties between business and government. Chief Secretary Huang Yong-tai of Cheong Wa Dae noted that the entrenched interests of political-business collusion have hindered Korea's progress.
During his campaign, Moon promised to eliminate franchise privileges. On May 17, he appointed Metalsurgel 9 as head of the regulatory body. As one of South Korea's hardline "reformists," Metalsurgel advocated for a transparent and fair market system.
Regarding whether this verdict signals a broader crackdown on chaebols, Gao Hao expressed skepticism. He believes Lee Jae-woon's case is an isolated incident, driven by the need for anti-Park forces to secure key witnesses. "Lee Jae-woon's bribery was a prerequisite for Park Geun-hye's trial, implicating him in a political scandal."
Gao Yu explained that the formation of South Korea's chaebols is a long-term outcome of decades of national industrial policies. Adjusting these policies is a complex process with significant economic, political, and societal implications. "It takes real determination for a new president to make such changes," he concluded.
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