Crisis Management
The Samsung Group, which took its first step as Samsung Store in 1938 and has become Korea's representative globalized company, is facing a situation where Lee Jae-yong, a vice chairman and de-facto head of the Samsung Group got arrested and put behind bars for the first time in its history. This means that Samsung is in an unprecedented crisis.
The court accepted the Special Prosecution Team’s claim that Samsung's special support for Choi and Choi's daughter was a sweetener and Samsung vice chairman Lee Jae-yong was involved in the decision-making process. The team applied for an arrest warrant on charges of giving bribery, misappropriation and an illegal escape of property in accordance with the Additional Punishment Law on Specific Crimes, a violation of the Anti-Criminal Profit Concealment and a perjury.
The vice president's imprisonment is expected to have an impact on the overall Korean economy as well as the Samsung Group. In addition to tangible economic losses invited by the cease of Samsung's new investment, intangible losses such as a decline in external credibility of Korea companies will be inevitable. The Samsung Group’s listed companies such as Samsung Electronics accounts for 30 percent of the total market capitalization of listed companies in the Korean stock market.
The arrest of the vice chairman prompted the operation of the Samsung Group’s emergency management system. It is expected that the Office of Future Strategy and the Group President’s Council which are the group’s control towers among others will maintain the status quo in order to minimize managerial voids. A brake will be put on large-scale facility investment in existing businesses such as semiconductors and displays. At the same time, vice chairman Lee in custody will derange the Samsung Group’s plan for M&As for next-generation growth engines such as the internet of things (IoT) and AI (Artificial Intelligence).
The confinement of vice chairman Lee will put on hold major issues such as a personnel reshuffle of presidents and top managers, business restructurings, the dismantlement of the Office of Future Strategy and transformation into a holding company system with no timetable. Although the Samsung Group will be able to complete its business strategies such as restructuring affiliates’ business for this year only when the personnel reshuffle is finished, the apprehension of vice chairman Lee has been stalling the group’s business planning.
On the other hand, it is being discussed that as vice chairman Lee Jae-yong was put under arrest, vice chairman Choi called “No. 2 of the group” will take the helm as the acting head of the Samsung Group and vice chairman Kwon most senior among Samsung Group CEOs will take charge of managing external channels.
Vice Chairman Choi has been leading the Office of Future Strategy since 2012 after serving as president and vice chairman of Samsung Electronics. Vice chairman Choi visited vice chairman Lee ahead of others after the latter’s lockup. Vice Chairman Kwon, a former researcher of the Samsung Semiconductor Research Institute, has been working as vice chairman and chief executive officer of Samsung Electronics after vice chairman Choi since 2012.
However, there is still some opinion that Choi is highly unlikely to work as proxy head of the Samsung Group, as he can still be investigated and prosecuted. This means that vice chairman Kwon will take the initiative in minimizing a vacancy left by vice chairperson Lee.
In the past, when Samsung Chairman Lee Kun-hee stepped down in connection to a special investigation by Cho Jun-woong in 2008, Samsung appointed Lee Soo-bin, chairman of Samsung Life Insurance as a substitute for chairman Lee. Chairman Lee Soo-bin, who was the oldest officer in the group acted as representative of the Samsung Group.
Similar cases can be found in other groups. As SK Group chairman Chey Tae-won was indicted for embezzlement and sentenced to prison in January 2013 and arrested in court, Kim Chang-geun, chairman of the SK Supex Council replaced chairman Chey, minimizing a managerial vacuum by chairman Chey.
Some experts say that Samsung’s leadership will be reorganized centering on Lee Bu-jin, a sister of vice chairman Lee and the president of Shilla Hotel. On the other hand, there are also a lot of opinions that such a possibility is slim because Lee Bu-jin has no direct experience in running electronics or financial affiliates.