Samsung has managed to achieve the ultimate in corporate success at the same time as suffering the deepest shame, with the conviction and jailing on Friday of its de facto leader Lee Jae-Yong on corruption charges.
Its core electronics affiliate became the world’s most profitable technology company in the past quarter, as Mr Lee, the conglomerate’s powerful vice-chairman, was sitting in a jail cell in Seoul awaiting his fate.
Yet the fact that Samsung Electronics raked in almost $10bn in quarterly profits should serve to ease investor concerns about the future of a company whose chief has just been sentenced to five years in prison.
Despite the conviction, many analysts expect Samsung’s successful run to continue, at least in the short term, as it continues to reap the rewards of long-term strategic investments and a cadre of competent executives.
However, questions are being raised about the company’s future planning and over whether South Korea’s largest and most powerful conglomerate should continue to be run in the manner of a dynasty.
“Even without [Mr Lee], the company was doing well, which raises questions about his legitimacy to control the group,” said Chang Sea-jin, a professor at the National University of Singapore and author of a book on Samsung. “It will be difficult for him to run the group like an emperor, as his father did in the past.”
The 49-year-old scion had been effectively leading the group since his father, Lee Kun-hee, was left incapacitated after a heart attack in 2014.
Before his arrest in February, the younger Mr Lee was in the midst of attempting to cement his position as heir — the wrangling included a controversial merger among Samsung affiliates that eventually became the basis for his corruption trial.
Mr Lee was convicted of a host of graft charges, including offering or pledging bribes worth millions of dollars to former president Park Geun-hye in exchange for her support for the contentious deal.
Kim Young-woo, analyst at SK Securities, sees little effect on the day-to-day running of the business, but expects Mr Lee’s absence to make Samsung more risk-averse.
“There will be no impact on Samsung’s existing businesses as professional managers are in charge,” he said. “But there could be some problems when it comes to M&A and new business areas that require billions of dollars of investment. These managers will be reluctant to be responsible for any large-scale risks.”
CW Chung, an analyst at Nomura, echoed the sentiment, saying: “There seems no short-term impact from Mr Lee’s absence, but there could be an impact on Samsung’s future businesses in the medium to long term.”
Samsung head sentenced to 5 years in jail “Samsung’s record earnings are thanks to the Lee family’s bold investment decisions made about five years ago in [chips], solid state drivers and OLED display panels. Those early investments are now paying dividends, but I am not sure what Samsung will be like in seven to eight years.”
Despite Friday’s verdict, Mr Lee may not face the next five years behind bars. His lawyers have already begun appeal proceedings. Moreover, it is not uncommon for South Korean presidents to pardon corrupt executives given the outsized role the conglomerates play in the South Korean economy.
While on the campaign trail months ago, Moon Jae-in, the country’s current president, vowed to abolish such pardons. Analysts believe such pledges will now be put to the test.
“[Lee Jae-yong] will probably get a presidential pardon and will be back at the company, promoted to chairman, in no time,” said Geoffrey Cain, author of an upcoming book on the Korean conglomerate.
“The scenario I envision is that Samsung announces the death of his father, chairman Lee Kun-hee, and uses it to garner sympathy for a pardon. Our beloved leader, the man who built the company and nation, is dead! . . . We call upon the president to pardon his son, so he may become chairman and save us!” said Mr Cain.
The prison sentence is also likely to complicate Samsung’s efforts to reform and improve its corporate governance, which has come under increasing criticism as placing the interests of the founding family above minority shareholders and workers.
After the current scandal surrounding Mr Lee erupted, the group announced it would dismantle its Future Strategy Office, a shadowy control tower that shepherded the conglomerate’s 62 affiliates with little oversight.
But it has evaded calls to turn this into a holding company structure — a key demand of activist investor Elliott Management.
“Shareholders, regulators and Samsung can all agree on forming a holding company. It will allow for a more formal governance structure, where people’s roles and orders are clearer. It will also solidify control under Mr Lee, giving him a stronger entity to issue orders,” said Mr Cain.
But many are dubious about whether such changes are now possible.
“With Mr Lee in prison, the process of corporate governance reform is expected to be suspended for a long time,” said Kang Myeong-jae, a professor at Hankuk University of Foreign Studies. “All eyes will instead be on Lee’s succession plans.”
Kim Woo-chan, a professor at Korea University and noted corporate governance advocate, added: “Mr Lee is likely to retain his control over the group, but the family succession would end with his generation. His children won’t be able to take over.”