Samsung heir's arrest in intensifies calls for cleanup

A major corporate executive sits in jail, accused of participating in a corruption scandal that could topple a country’s top leader. In most places, that image would probably fuel a campaign to clean up incestuous links between business and government.

That situation is now unfolding in South Korea — but the prospects for a major housecleaning look uncertain.

The unprecedented arrest on Friday of the de facto leader of Samsung, the largest company in the country, highlighted once again the outsize political influence of the largest family-run companies there. Critics of their power cheered the arrest of Lee Jae-yong, Samsung’s vice chairman, as a major step toward curbing that authority.

Still, others warned that the arrest would not necessarily lead to the sweeping changes they say South Korea needs to fight corruption and overhaul its economy. The arrest was “just the beginning,” said Sim Sang-jeung, an opposition lawmaker who has campaigned for transparency at the largest companies. She warned against a tendency among the law enforcement agencies to treat major corporate chiefs with kid gloves. “We needed to see whether prosecutors ask for a sentence befitting his crimes and whether he is convicted with such a penalty,” Sim said. “Only when he finishes serving such a lengthy sentence will people believe that the law is alive in their country.” It also raises questions about the fate of Samsung, a huge company whose electronics arm alone accounts for one-fifth of South Korea’s exports.

Wearing a well-tailored suit, Lee emerged through the metal detectors of a court in Seoul, the capital, on Thursday and past a news media gantlet to his car, which drove him to a detention center to await a decision. Early Friday morning, he learned that he would be staying at the detention center through his trial.

South Korea faces a tenuous balancing act. For decades, its growth has been fueled by companies like Samsung, one of a group of family-controlled conglomerates called chaebol. Chaebol are now firmly embedded in the country’s economy, with the 10 largest generating annual revenue exceeding 80 percent of South Korea’s gross domestic product. Business groups warn that disrupting the chaebol could hurt the broader economy.

“We are shocked and deeply worried,” the Korea Employers Federation, a pro-business lobby, said in a statement about the arrest.

“Samsung is the global company that represents South Korea, and we fear that the vacuum in its management will weigh heavily on the economy by increasing uncertainty and hurt international credibility.”

But the power of the chaebol is coming up against rising public anger over the perception of corruption and favoritism. Among those 10 biggest chaebol, six of their leaders have been convicted of white-collar crimes. Many have been pardoned or had their sentences suspended or reduced. Chaebol leaders face broader questions as well about whether their economic dominance squelches small business and innovation, accusations that their lobbyist denies.

Reflecting the public mood, the governing — and usually pro-business — Liberty Korea Party said it respected the court’s decision to arrest Mr. Lee and expressed “regrets that the people have been again disappointed by the deep-rooted collusion between politics and business.”

Mr. Lee is accused of bribery, embezzlement and perjury as part of an investigation into a confidante of the country’s president, Park Geun-hye. Ms. Park now faces impeachment. Samsung has said Mr. Lee will work to clear his name in court.

The police arrested Mr. Lee and took him into custody, an unprecedented move for a major Samsung official. But in terms of accusations of wrongdoing against a top executive, Samsung has been there before. Mr. Lee’s father, Lee Kun-hee, Samsung’s chairman, has twice been convicted of bribery and tax evasion.

Still, the elder Mr. Lee never spent time in prison. The fate of the young Mr. Lee, critics of the chaebol say, will be a test of the country’s young democracy and judicial system.

It will also be a test for Samsung. For the first time in its 79-year history, the company has been left leaderless. With Mr. Lee gone, there is no top executive to make long-term plans and strategic decisions.

Samsung has an army of professional executives that manage day-to-day operations of its 58 subsidiaries. But analysts say that without a family-appointed leader, decision making will slow.

In chaebol culture, often likened to an imperial monarchy within South Korea, the chairman must endorse or make corporate decisions. So the removal of Mr. Lee, who has been the de facto leader since his father was incapacitated by a heart attack in 2014, is far more serious than the loss of a senior executive at a conventional company.

Choi Gee-sung, the No. 2 lieutenant in the Samsung hierarchy and longtime right-hand man for Mr. Lee, will be the closest substitute to a top manager at the company while Mr. Lee is gone. But Mr. Choi is not a member of the Lee family and is expected to serve largely as a “vassal” caretaker who lacks the kind of sweeping authority and responsibility that Mr. Lee and his father have wielded in placing multibillion-dollar bets on investments or new technology.

In one sign of disruption, Samsung delayed its annual reshuffle of senior managers, which it usually announces in December. Compounding concerns, Mr. Choi and his deputies are also being investigated by prosecutors in connection with the bribery scandal.

The arrest comes at a difficult time for Samsung’s electronics arm. The company has faced stiff competition from Apple and cheaper Chinese smartphone makers alike. It is also still recovering from the discontinuation of its Galaxy Note 7, after flaws led some of the phones to overheat and burst into flames.

Still, few believe Mr. Lee’s arrest will challenge the family’s ultimate control of the company. In 2008, facing corruption charges, Mr. Lee’s father resigned from management, leaving the company to be run by loyal deputies, who served the family for decades and whose responsibilities were to ensure the father-to-son transfer of power.

For Samsung, one test will be whether the argument that its fate is important to the South Korean economy carries the same weight. When huge crowds took to the streets on recent weekends to call for the impeachment of Ms. Park, they also called for the arrest of chaebol chairmen accused of playing a crucial role in the presidential scandal.

On Friday, Moon Jae-in, the opposition leader who tops surveys of potential candidates to replace Ms. Park, called the arrest “proof that justice is still alive in South Korea.”

Chief Lee returned to prosecutors for second day
 

 

Samsung Group’s Jay Y Lee was taken back to a special prosecutor’s office for a second day following another night in police custody as part of a corruption probe that has widened to include South Korea’s largest industrial conglomerate. Lee, vice chairman of Samsung Electronics was inside the office for about eight hours the day before. On Friday, the Seoul Central District Court arrested Lee on a warrant including allegations of bribery, perjury, embezzlement, hiding assets abroad and concealing illegal profits.    

Lee has been the acting head of Samsung while his father, Samsung Electronics Co. Chairman Lee Kun Hee, has been hospitalised since 2014. The probe could eventually interfere with the son’s ability to take full control of the group after his father formally steps down. - Bloomberg

© 2017 The New York Times News Service