For Bribing the Ousted President
Samsung Electronics vice chairman Lee Jae-yong was sentenced to two years and six months in prison for bribing ex-President Park Geun-hye in a trial held at the Seoul High Court on Jan. 18. He was arrested in court.
The arrest of the Samsung Group heir came in 1,079 days since he was released on probation in February 2018. Samsung Group officials were shocked as the group’s head was arrested and put behind bars three months after the death of his father and the late chairman Lee Kun-hee in October 2020.
From early morning, silence has gripped officials at Samsung Electronics' office building in Seocho-dong, Seoul. Gloom prevailed when the news came out that vice chairman Lee was taken in at around 2:20 p.m. "I feel terrible," said a high-ranking official of Samsung Electronics. “We expected a suspended sentence for him, so the shock is all the greater.”
"We even set up a compliance committee on advice from the court, but the results were far from what we anticipated,” another official said.
Some industry experts raised concerns that the absence of the Samsung leader may prevent the business group from seizing business opportunities on time. "I am concerned that the arrest of Lee will slow down Samsung’s push for innovation and technological advancements,” said Sohn Wook, former head of the Samsung Advanced Institute of Technology. "Nobody can surely say that Samsung will not follow the path of Sony, which once lost its prestige."
Samsung Electronics did not issue a statement on the matter. Analysts say that professional managers will run Samsung affiliates, unlike four years ago when Lee was first arrested. At that time, Samsung disbanded its Future Strategy Office, which served as the group’s control tower, and coordinated pending issues by setting up task forces at three major affiliates -- Samsung Electronics, Samsung Life Insurance, and Samsung C&T.
However, analysts say that the absence of the group’s top decision maker will bring about more negative consequences than four years ago. "This is a much more difficult time than then." said Prof. Lee Byung-tae of the KAIST. "A digital economy has been advanced by more than 10 years due to the spread of the new coronavirus, and the U.S.-China trade has further solidified China's will to accomplish its independence in the semiconductor sector. Under these circumstances, the arrest of Lee can have a huge negative impact on the nation’s largest business group."
Lee’s arrest may hamper Samsung Group in securing new growth engines. Large-scale investment decisions were put on hold at Samsung Electronics during the period from February 2017 to February 2018 when Lee was behind bars. The last big investment decision was made to take over Harman International, an automotive electronics giant in the United States, in November 2016. It was three months before Lee was taken into custody. This time, semiconductor industry watchers say that the arrest may hinder Samsung from pressing ahead with the 133-trillion-won investment plan for the system semiconductor business.
"The arrest of vice chairman Lee will inevitably delay key decisions on large mergers and acquisitions or investments that must be made at the group chairman level," said Lee Kyung-mook, a professor of business administration at Seoul National University.
Foreign media outlets such as Bloomberg, the Nihon Keizai Newspaper, and Reuters predicted that Samsung Electronics will face difficulties in the absence of its head at a time when the Korean tech giant is having a tough fight with its rivals. In the current situation where competition is intensifying due to U.S.-China risk and COVID-19, a leadership vacuum at Samsung will impede the development and implementation of long-term projects or large-scale investments, Bloomberg forecast.
The stock price of Samsung Electronics fell 3.41 percent to close at 85,000 won on the day. The company’s market capitalization evaporated by about 18 trillion won in just one day. The news pulled down other Samsung Group affiliates’ stock prices including those of Samsung C&T (6.84 percent), Samsung Life Insurance (4.96 percent), Samsung SDI (-4.21 percent), and Samsung Engineering (3.65 percent). Vice chairman Lee is the largest shareholder of these companies.