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Samsung’s boss thought he was out of the woods. Not so fast

by Ace Damon
Samsung’s boss thought he was out of the woods. Not so fast

WHEN A COURT in Seoul ordered that Lee Jae-Yong be released from jail in February last year, Samsung’s boss had reason to believe that the worst was over. Moon Jae-in, South Korea’s left-wing president, who had kept his distance from its biggest chaebol (conglomerate) for its role in the scandal that brought down his predecessor, was quick to mend relations.

Last autumn he took Mr Lee on a jolly to North Korea. Earlier this year, he launched his national semiconductor strategy at a Samsung factory outside Seoul. For a while, it even looked as though Mr Lee might be able to resume the process which the judges who handed down his sentence for bribery had so rudely interrupted: restructuring shareholding to ensure long-term family control over Samsung.

Such hopes were dashed on August 29th, when the Supreme Court overturned the ruling by a lower court that had suspended Mr Lee’s prison sentence and ordered his case to be retried. The judges said that, contrary to Mr Lee’s claims, Samsung had not been exhorted by a confidante of Park Geun-hye, the disgraced former president, when it gave her daughter three horses worth around $3m.

Rather, the horses were bribes meant to ensure government support for a controversial merger, which was part of a plan to ensure the smooth transfer of control to Mr Lee from his ailing father (Samsung has always denied that such a plan exists).

Critics of Samsung hailed the verdict as a victory for transparency and the rule of law. Mr Lee now faces months of uncertainty ahead of his new trial—and, some observers believe, more time in prison. Prosecutors may feel emboldened to dig deeper into his involvement in other cases in which Samsung is embroiled.

These include accusations that Samsung BioLogics, an affiliate, fiddled its accounts to ease Mr Lee’s succession, and that executives from Samsung Electronics, the group’s crown jewel, were complicit in destroying evidence, possibly at Mr Lee’s behest (Mr Lee and Samsung deny the charges).

The ruling is also troubling for Samsung, which is already struggling with falling semiconductor prices, the fallout from the trade war between America and China and Japanese export restrictions on three chemicals that are essential for chipmaking. Mr Lee is not directly in charge of day-to-day decision-making at the company.

But strategic decisions about how to deal with these and future challenges may still be delayed until his fate is certain. Lawmakers, long cowed by South Korea’s most powerful company, may push through pending legislation that would curtail the company’s ability to restructure in a way it deems best for transferring control from Lee senior, who has not been seen in public since falling ill in 2014, to his son.

The verdict may also catch the attention of another erring chaebol leader. Shin Dong-bin, the boss of Lotte, a Korean-Japanese conglomerate best known for its duty-free shops, is awaiting a ruling on the suspension of his sentence in a related influence-peddling case (he maintains his innocence). If the judges take their cue from Mr Lee’s case, he too could face a longer prison term.

Advocates of corporate reform hope that the verdict will convince Samsung and other conglomerates to make good on their vows to improve transparency and corporate governance, which would benefit them in the long term. Mr Lee’s previous jail term, while bad for the company’s reputation, had little impact on Samsung stocks, suggesting its fortunes are not necessarily tied to his. A decent corporate structure would help the company more than the scion’s swift return to the helm.

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