On the 18th of this month, Samsung Electronics Vice Chairman Lee Jae-yong was sentenced to 2 years and 6 months in prison and arrested in court by the Seoul High Court of South Korea in connection with the bribery case of former South Korean President Park Geun-hye’s cronyism. A week later on the 25th, Lee Jae-yong said through his lawyer that he humbly accepted the verdict and dropped his appeal. As Lee Jae-yong was already arrested and served one year in prison in 2017, he still has to spend one year and six months behind bars.
This means that Samsung Electronics, the technology giant, will face a period of Time without a master, South Korean business and academic sources told the Voice of America worried that Lee Jae-yong’s vacancy will not only set back Samsung Electronics’ transformation plan, but is also feared to drag down the South Korean economy. At the same time, the verdict of the case breaks the “formula” of probation for South Korea’s chaebols and announces a major shift in the country’s political and business relations.
Lee Jae-yong’s case is settled, what is the possibility of early release?
The case of Lee Jae-yong and Samsung Electronics was also profoundly involved when his father, former Samsung chairman Lee Ken-hee, was hospitalized in 2014 due to illness and Samsung was essentially run by Lee Jae-yong, whose crony Choi Soon-sil, a close associate of then President Park Geun-hye, was exposed in the media in November 2016.
In February 2017, Lee Jae-yong was indicted and jailed for allegedly bribing 29.8 billion won (about $27.02 million) to then President Park Geun-hye and her crony Choi Soon-sil in exchange for help in business succession issues. In the first trial, the court found Lee Jae-yong guilty of partial bribery and sentenced him to five years in prison. A year later, the court of second instance handed down a sentence of 2.5 years in prison and 4 years of probation, and Lee was released. in August 2019, the Supreme Court of Korea, in a final judgment, vacated the second instance court’s verdict against Lee Jae-yong and others and remanded the case for a retrial.
In the retrial process, Lee Jae-yong himself and Samsung had made some efforts to seek leniency. Samsung followed the court’s recommendation to set up a law-abiding supervisory committee; Lee Jae Yong himself held a press conference on the issue of “Zaibatsu heredity” and made it clear that his children would not inherit the management of Samsung. However, the court found that the activities of Samsung’s Law Compliance Supervisory Committee were not effective, and eventually handed down the actual sentence.
After dropping the appeal, is there a possibility that Lee Jae-yong will be released from prison early? Park Ji-hoon, a lawyer at DIDIMDOL law firm, told Voice of America, “There are two options for Lee Jae-yong, the first of which is parole. If he has served one-third of his sentence, he can ask for parole. He has already served 12 months of his 30-month sentence, so he has already met the conditions for parole, but it is expected that he will ask for parole after he has served 20 months, or 8-9 months. There is also the method of pardon through presidential authority.”
Samsung Semiconductor’s 10-year plan is expected to be blocked
In any case, Samsung Electronics will face a period of time without a master. The verdict so far, Samsung Electronics has not publicly issued any position, and did not respond to the Voice of America’s request for comment.
In terms of market reaction, Samsung Electronics has long recovered from the shock of Lee Jae-yong’s sentencing. Its shares plunged 3.4 percent on the day of the verdict, but recovered all the losses in the next two trading days. But Hong Kee-young, a professor at Incheon National University’s business school, told the Voice of America that the impact of Lee’s vacancy on Samsung will be long-term. Due to the special structure of Korean large companies, the role of professional business managers is limited, and the vacancy of the head of the company will make Samsung face extremely high uncertainty in long-term investment decisions.
In 2019, Samsung announced its “Semiconductor Vision 2030”, a plan to achieve the No. 1 position in the global system-on-chip market by 2030 through a 133 trillion won ($120 billion) investment. The goal of the first chip market. According to the plan, Samsung will first invest heavily in the chip foundry business to narrow the gap with TSMC, the world’s largest chip foundry. According to data from Trendforce, TSMC’s share of the global chip foundry market was 53.9 percent in the third to fourth quarters of last year, while Samsung, which ranked second, was only 17.4 percent.
“Timing is very important in cutting-edge industries like semiconductors, which require swift and bold investment decisions,” Hong Kee-young noted, adding that “Lee Jae-yong’s vacancy would put Samsung in a disadvantageous position by making investments that lag behind competitors in countries like Taiwan.” In fact, shortly before Lee was sentenced, TSMC unveiled a record $28 billion equipment investment plan, the vast majority of which will be invested in state-of-the-art process technology.
Korean business community worries about drag on national economy
The South Korean business community is worried that the impact of Lee Jae-yong’s imprisonment will further spread to the country’s economy. Before the verdict, several Korean economic groups had submitted a petition to the court, calling for leniency for Lee Jae-yong considering the economic impact. After the verdict, the National Economist Federation, one of the major economic groups in Korea, commented, “Considering Samsung’s share in the Korean economy and its status as a multinational corporation, we are concerned that the shrinkage of Samsung’s business activities caused by the verdict will not only affect individual companies, but also have a negative effect on the Korean economy as a whole.
South Korea is known as the “Republic of Samsung”. Data show that Samsung Electronics’ exports account for about 20% of Korea’s total exports, and its corporate market value accounts for about 25% of the total market value of the Korea Composite Index; Samsung Electronics’ corporate tax also accounts for 16% of Korea’s total corporate tax.
Due to its huge volume and Korea’s vertically integrated industrial structure around plutocrats, Samsung’s business can be said to be deeply integrated and inseparable from the development direction of the Korean economy. For example, the South Korean government’s plan to invest 125.3 billion won (about $110 million) in artificial intelligence semiconductors, announced on the 12th of this month, echoes Samsung’s “Semiconductor Vision 2030”. This also means that the setback in Samsung’s transformation is likely to slow the pace of development of related industries in South Korea.
A person from another major South Korean economic group, who requested anonymity, worriedly told Voice of America, “The global economy is currently facing major changes such as the post-New Champions era and the fourth industrial revolution, which can be described as a period of major industrial paradigm shift and requires bold and risky challenges. But the verdict will weaken Samsung’s leading role as a representative Korean company and put the Korean economy under pressure”.
Lee Jae-yong’s verdict signals the transformation of Korea’s political and business relations
Even regardless of the economic impact, the verdict in the Lee Jae-yong case itself came as a surprise to the South Korean community. Park Ji-hoon told VOA, “In Korea, there has been a “3-5 law” for the head of a chaebol, which is 3 years in prison and 5 years of probation, thus creating a common belief that chaebols don’t go to jail even if they commit crimes. Lee Jae-yong’s father, Lee Ken-hee, was also prosecuted twice in 1996 and 2007 for his power and money dealings with South Korean political and judicial power players, but was eventually given suspended sentences and spared jail time. It can be said that the verdict of Lee Jae-yong clearly releases the signal of the transformation of South Korea’s political and business relations.
“The chaebol should realize that the way it used to be doesn’t work anymore,” Choi Baek-geun, a professor at the Department of Economics at Konkuk University in South Korea, told the Voice of America. He noted that in the early stages of South Korea’s economic development, the authoritarian government and Zaibatsu capital formed a symbiotic relationship. The government invested public resources, such as foreign currency, in industries they wanted to support and businesses associated with them, and granted preferential treatment; businesses that grew in this way in turn provided political funds to the government to help maintain the dictatorship. “But South Korea’s democracy and social transparency have grown considerably in more than 40 years, and the judiciary cannot disregard public opinion,” Choi said.
Since former President Park Geun-hye was impeached in 2016 amid a public outcry over collusion between business and politics in South Korea, the current government under Moon Jae-in has pushed hard for plutocratic reforms. At the end of last year, three laws were passed in the National Assembly, including the amendment to the Commerce Act, known as the “Three Laws of Fair Economy”. The three laws aim to improve the corporate governance structure, prevent Zaibatsu from unduly expanding their dominance over companies, and strengthen the monitoring of Zaibatsu families’ internal transactions.
“For a long time, the Zaibatsu will certainly challenge the Three Laws for a Just Economy,” said Park Ji-hoon, adding that “although the Three Laws are detrimental to big businesses, they are beneficial to normal business activities, especially for workers and most people. The three laws are beneficial to normal business activities, especially for workers and the majority of the people; they are also necessary in the current situation.
In the face of this change, how should Korean chaebols conduct themselves in order to avoid risks to themselves, their companies, and even the national economy? “Anyone, whether a corporate president or a top executive, should be punished if he or she commits improper acts such as bribery. However, the situation in Korea is different from that of foreign countries, where the Zaibatsu Family dominates the entire business, and a corporate Culture that separates ownership and management is needed in the future,” said Ji-Hoon Park.
Choi Baek-geun and Hong Ki-young pointed out that the chaebol needs to adapt to the changing times and society. “In the same way as his grandfather Lee Byung-cheol and father Lee Ken-hee, Lee Jae-yong paid bribes to the president for his own benefit …… He failed to recognize that Korean society is different from the past and acted according to the residual inertia of the past, which led to this tragic result,” Choi Bacon believes.
Hong Kiyoung said, “At present, large Korean companies have become multinational corporations and Korea has moved into the ranks of developed countries, with laws and systems that are on par with global standards. If in the past, companies had difficulties in operating due to some factors unique to Korean culture and society, they need to operate in a way that is law-abiding, contributes to society, and meets global standards in the future in order to achieve longer-term growth in the global market.
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