On August 25, the South Korean court handed down its first-instance ruling, sentencing Samsung Vice President Lee Jae-woo to five years in prison for bribing former President Park Geun-hye and her confidant Choi Soon-sil. The prosecution had initially proposed a 12-year sentence for Lee Jae-woo on charges including bribery, but the court found him guilty on all five counts, opting for a lighter sentence. On August 28, Lee Jae-woo's defense counsel filed an appeal against the first-instance verdict.
There is speculation about the possibility of amnesty. 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-woo’s case is particularly noteworthy. Many high-ranking South Korean officials who have been imprisoned have received presidential pardons. For instance, Lee Jae-woo’s father, Lee Jae-yong (Vice Chairman of Samsung), was indicted in 1996 and again in 2008, yet both times he avoided jail time due to presidential amnesty. Other notable figures like the founder of Daewoo Group, Kim Woo-choong, Hyundai Motor Company’s Zheng Mengjiu, SK Group Chairman Chey Tae-won, and former Sage Group President Lee Jae-yong were also sentenced to imprisonment but benefited from similar pardons.
Gao Wei pointed out that South Korea’s industrial policy has historically favored large conglomerates, especially during the financial crisis. Samsung holds immense economic influence in South Korea, making it stand out compared to other chaebols. “Samsung’s global competitiveness is quite rare for a Korean company,†he noted.
He also mentioned that the rapidly changing domestic political landscape has played a significant role in granting amnesty to high-ranking officials. “If Samsung’s growth slows down South Korea’s economic progress or negatively impacts people’s incomes and livelihoods, it could lead to new political demands.â€
Samsung’s stock price fell 1.43% on August 25, with Samsung Electronics’ shares dropping 2.95% initially. By August 28, Samsung Electronics continued to decline by 1.96%, and Samsung property sales fell by 3.37%.
Industrial economist Liang Zhenpeng told the 21st Century Business Herald that the verdict represents a major setback for Samsung. Not only did its stock prices drop, but its brand image and the trust of upstream and downstream business partners have also suffered. Although Samsung operates under professional management, the absence of a clear leader could negatively impact strategic decisions and major industry investments.
Liang Zhenpeng also highlighted that Samsung Electronics faces numerous challenges. While Samsung remains competitive in core phone component areas like chips, flash memory, and screens, its smartphone advantages are diminishing. In China, brands like Huawei, OPPO, and VIVO are outpacing Samsung, and globally, Samsung’s influence is being challenged.
Regarding the Note7 spontaneous combustion issue, Liang Zhenpeng believes it reflects long-standing problems within Samsung’s mobile division. “Samsung has unresolved technical weaknesses,†he stated, adding that this is a consequence of neglecting these issues during its smartphone expansion. He warned that without leadership, Samsung could face greater negative impacts.
Gao Shuo analyzed the incident’s impact on Samsung’s family business succession. He argued that succession is inherently risky for family enterprises, and Samsung’s Note7 troubles are closely linked to leadership vacuums during succession. Gao Yu elaborated, stating, “During a critical leadership transition, Lee Jae-woo, the sole male heir, failed to assume the president’s duties, which has severely harmed Samsung.â€
Despite this, Gao Yu remains optimistic about Samsung’s future. He noted that Samsung’s talent pool, financial stability, and industrial layout are robust. Besides Lee Jae-woo, the eldest son of Lee Jae-yong, there are two capable daughters, Lee Fu-zhen and Lee Shu-xian, who may play key roles in the family business. Additionally, Samsung’s professional managerial team will continue to be vital.
Gao Yu emphasized that Samsung’s leadership style under Lee Jae-woo has been characterized by decentralization and delegation. In recent years, he focused on major strategic decisions like Samsung’s new business plans and industrial layouts, including ventures into biopharmaceuticals and divesting non-core businesses. Meanwhile, operational management remained with Samsung’s strategy teams and professional managers.
He underscored that when analyzing the impact of Lee Jae-woo’s imprisonment, it’s important to recognize that Samsung’s management isn’t reliant on a single individual but rather a cohesive team. “Unlike U.S.-style CEO-centric models, Samsung’s approach is distinct.â€
“Samsung places great emphasis on building a talented workforce,†he added, noting that its talent pool is extensive. Furthermore, the new strategic direction is largely set, ensuring Samsung Electronics and existing industries maintain their edge. While pharmaceuticals, as a strategic focus, have limited short-term impact due to already established strategies.
The South Korean presidential office, the Blue House, viewed the verdict as an opportunity to sever ties between business and government. Secretary Huang Yong-tai stated that the entrenched relationship between politics and business has hindered Korean progress. During his campaign, Moon Jae-in promised to end franchise privileges. In May, he appointed Metalsurgel 9 to head the supervisory body, a known advocate for transparency and fair markets.
However, Gao Yu expressed skepticism about whether this ruling signals broader chaebol reforms. He sees Lee Jae-woo’s case as an isolated incident driven by political needs. The formation of chaebols over decades is tied to national industrial policies, and adjusting these policies would significantly affect the economy, politics, and society. “The new president’s determination to reform chaebols is no small feat,†Gao Yu concluded.
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