Samsung Group’s heir, Lee Jae-yong, made a surprise announcement on 6th May, 2020 that he will not pass the company down to his children, which his grandfather, Lee Byung-chul, founded in 1938. He also apologised for the company’s past wrong doings. What made the heir of South Korea’s largest conglomerate end the dynasty and what is the Samsung bribery scandal about? This article gives a brief description of it.

Who is Lee Jay-yong?

Samsung heir Lee Jae-yong

Samsung heir Lee Jae-yong

Lee Jay-yong or Jay Y Lee (51 years) is the grandson of Lee Byung-chul, who founded the Samsumg Group in 1938. He has been groomed from a young age to take over the family firm. He has graduated from SNU( Seoul National University) and has completed his doctorate from Havard Business School. He became president of the Samsung group in 2009, and the Vice-Chairman of Samsung electronics in 2013.  After Lee’s father suffered a heart attack in the year 2014, Lee became the de facto boos of the Samsung Group as a whole. Lee , divorced father-of-two, has a net worth of 6 billion USD.

Chronology of events of the Corruption Scandal:

2016:

In November 2016, the offices of Samsung Group were raided with the allegations that it had bribed Choi Soon-sil, the then President Park Geun-hye’s nearest friend and confidant, to win the state’s approval for a controversial merger of two units of the Samsung Group in 2015. 2016 saw the wake of a massive corruption scandal involving South Korea’s political and business elites. By the end of 2016, Choi gets indicted and the parliament votes to impeach the president. President Park gets stripped of her powers and Prime Minister Hwang Kyo-ahn becomes acting president.

2017:

In the wake of 2017, Park denies the allegations and Samsung heir Lee Jae-yong becomes a suspect in the bribery scandal. In February 2017, Lee and the other company executives get indicted for bribery and embezzlement by special prosecutor. The special prosecutor comments that Park had colluded with her confidant Choi to take bribes from the Samsung group. In March, Lee’s trial begins.

He was indicted on the charges of payments made to Choi’s foundations of over 43 billion won($ 36.4 million) and also gifting her three horses, Vitana, Salcido and Rausing and several million dollars to aid the equestrian career of Choi’s daughter, Choi Yoo-ra. In the same month Park’s impeachment is upheld by the constitutional court  and Park gets removed from her office.

President Park was succeeded by the current President Moon Jae-in who has campaigned with the promise that he would not treat tycoon convictions lightly and will not easily issue Presidential pardons as it had been the unwritten norm in such cases in the past. Fast forward to August 2017, prosecutors appeal for a 12-year jail term for Samsung’s de facto boss Lee Jae-yong. On the 25th  of August the Business Elite Jay Y Lee or Lee Jae-yong gets a jail time of 5 years. Lee was also accused of perjury and owning of undeclared assets abroad. The arrest of Lee, the Chairman of South Korea’s largest family controlled conglomerates, known as chaebols, was quite a shock to people.

Lee Jae-yong being taken into custody for Samsung Scandal

Lee Jae-yong being taken into custody.

2018:

In February 2018, Seoul High Court suspends Lee’s jail term and that allowed him to walk out free. Mr Lee’s release definitely meant a huge amount of relief to the Samsung group and investors were again interested in investing which led to the rise in share prices of the company.

2019:

On 29, August 2019, the Supreme Court sends back the corruption case of Lee for a retrial to the lower court by overturning the lower court’s ruling which raised the possibility that Mr. Lee could be imprisoned again.  In December 2019, in two separate court rulings, many more current and former managers of Samsung were convicted of illegally plotting to keep the conglomerate free of union activism.

Impact on Samsung’s Future:

When Lee was arrested, his absence had a very little damage in the day-to-day activities of the company. Short run decision making was already delegated to unit heads. In fact, in future, problems may arise because short run decision making is so efficient that the units function only to their interests leading to the degradation in co-ordination of the Samsung Group as a whole.

However, an research analyst who wishes to be anonymous said that Samsung’s new offices have many tech prodigies who are not suited to the hierarchical culture and would leave if Mr. Lee is absent for a very long time, which may substantially damage the company’s interests.

Whatever may be the impact, it is clear that Mr. Lee would not return to the same position with the same hold. And the saying that, “Whatever is good for Samsung, is good for the country”, may not hold true in future. So, the South Koreans have to prepare for a change even though it might hurt the country’s economy for a short run.

Though it would be challenging since Samsung currently contributes about 17% of the country’s GDP( $ 1082 billion) , but it is most likely to happen. However, even though Samsung is going through troubles with the Vice Chairman’s and executives’ scandals, its earnings through the years seem to be on rise.

Samsung’s earnings and margins from 2014-2020.

Samsung’s earnings and margins from 2014-2020

Lee’s apology on 6th May, 2020 and change in Succession planning:

 Lee Jae-yong has apologized on Wednesday, 6th May, 2020, for his role in the bribery scandal and the executives’ role in sabotaging the formation of organized labour or labour unions. Lee’s remarks of apology are the outcome of the Samsung Group’s oversight Panel which advised him to do so.  

He has apologized saying that the company has failed to maintain ethics in the past and failed to abide by the law. He vowed to ensure labour rights in the tech giant. Lee Sang-hoon, the then board Chairman of Samsung Electronics Co. Ltd have also been jailed in December and he has resigned since then.

He has also mentioned that he will not pass down the managerial rights to his children and rather intend on making it public. And that is a huge change in the structure of the family controlled conglomerate, as controlling it seemed to be the birthright of the Lees.  This break in tradition is a moment of history for the chaebol which contributes a significant amount to the country’s GDP.

However, Lee’s apology was deemed vague and it has been criticized by many people, which includes Kim Woo-chan, a professor of Finance at KU Business School. Now at present as Lee Jae-yong is awaits his trails and verdicts, we would have to wait to see whether the Tech giant’s heir keeps his promises or not!

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