(Bloomberg) -- Three years after explosive allegations of graft and corruption brought down the government of Asia’s fourth-largest economy, South Korea’s chaebol culture will again come under the microscope when Samsung Electronics Co. heir Jay Y. Lee returns to court.
The billionaire’s retrial over expanded corruption charges begins Friday at the Seoul High Court, rebooting a landmark case that led to the impeachment of then-president Park Geun-hye and inflamed popular anger over the power of Korean conglomerates, also known as chaebols. It threatens to potentially throw the de-facto leader of Korea’s biggest company back in jail.
“This is problematic for Samsung as it seeks to elevate and portray him as a Silicon Valley-minded reformer,” said Geoffrey Cain, author of an upcoming book about Samsung. “He won’t be able to shed the image of corruption that easily.”
The appeals court that decided to release Lee in early 2018 from jail, where he’d spent about a year after his initial arrest, will decide his final sentence over the course of the next few months. Factoring in the trial’s social and economic implications, Park Sang-in, a professor at Seoul National University, warns it could take longer than usual and stretch beyond six months.
Unless new evidence emerges during the retrial, the appeals court is expected to rule in line with the decision of Korea’s Supreme Court, which found that Lee had used three horses and additional funds, via an intermediary, to bribe President Park while seeking political support for his succession as Samsung chief. This would mean altering Lee’s presently suspended prison sentence.
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The total amount of alleged bribery determined by the top court, including all three equines, carries a minimum sentence of five years, which cannot be suspended in the same way that Lee’s existing sentence has been. Media coverage in Korea, however, has centered on Article 53 of the Korean Criminal Act, which stipulates there could be a discretionary mitigation of the punishment “when there are extenuating circumstances.” In Lee’s case, the damage to Samsung -- crucial as it is to Korea’s economy -- could be presented as grounds to keep him out of prison.
Even in the event of an unfavorable ruling, the 51-year-old Samsung scion would still be able to appeal at the Supreme Court one more time, which could take another year. To avoid such a protracted legal battle, people in and out of Samsung have expressed hope that the court may reduce the punishment and slash the sentence to a suspended 30-month term.
But close observers of Korean politics and its mighty family-run conglomerates argue there is little chance that Lee will avoid imprisonment, saying Samsung should brace for the worst case scenario.
“If this company had a normal corporate culture, it could start a process of searching beyond Jay Y. Lee, just as Steve Jobs and Jack Ma spent time designating their successors,” said Seoul National University’s Professor Park. “Samsung, however, sticks to an idea that only a controlling family member should manage its overall business. If Lee can step back to stay as a major shareholder and find a ‘real’ professional manager, it may light the fuse for changes.”
Samsung, the world’s largest memory chip and smartphone maker, has an army of business experts and senior managers who can run its day-to-day operations, according to Park Ju-gun, president at corporate research firm CEOScore. Lee could continue his management even while in prison and then come back as a leader when he’s out, emulating the example of his chaebol peers including SK Group chairman Chey Tae-won and CJ Group chairman Lee Jay-hyun, who today are active leaders of their conglomerates in spite of having spent years in jail.
Samsung Billionaire Heir to Cede Board Seat Before Legal Probe
Under pressure, Lee gave up on extending his three-year term on the Samsung board, which is set to expire on Saturday. Although he’s keeping his title as vice chairman, it will be the board that drives overall management decisions, according to people familiar with the matter. Board Chairman Lee Sang-hoon and Samsung President Chung Hyun-ho -- who’s managing Samsung’s business task force and is known to be an ally of Lee’s -- are likely to take the lead in management in the absence of the heir, according to CEOScore’s Park and Samsung officials.
The latest chapter in the ongoing legal drama is kicking off at a sensitive time for the half-century-old tech behemoth. Samsung is confronting heightened uncertainties from a lingering trade war between the U.S. and China as well as a trade spat between South Korea and Japan, both of which complicate its market outlook and supply chain. A rising tide of new technology like fifth-generation mobile networks and artificial intelligence is also opening up new opportunities for eager Chinese rivals, who are spending lavishly to catch up to Samsung and its cash-cow businesses of semiconductor and display manufacturing.
Lee’s absence would dampen Samsung’s aggressiveness in pursuing massive deals for future technology, which are often struck among the top leaders between two companies, according to people familiar with the matter. While they claimed that Lee’s leadership is crucial for making decisions over the company’s long-term blueprint, Samsung has already announced $116 billion in investments for logic chips through 2030. It envisions a further $11 billion of spending for next-generation displays by 2025.
Behind the scenes, activist investor Elliott Management Corp. is closely watching the outcome of Lee’s legal wranglings, as it had an interest in the controversial 2015 merger at the root of the heir’s current travails. The New York-based hedge fund has filed an international arbitration claim that contends Korea unlawfully meddled in that merger and it now seeks compensation of more than $700 million.
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