Samsung Electronics’ Management in Crisis Mode Pending Verdict of Vice Chmn. Lee
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Samsung Electronics’ Management in Crisis Mode Pending Verdict of Vice Chmn. Lee
stands at a crossroads of whether the group restores its management to normal or staggers on with significant disruptions in its global strategies

25(Fri), Aug, 2017

Samsung Electronics Vice Chairman Lee Jay-yong. (Photo: Samsung Electronics)

Global attention is now squarely on how Samsung Business Group steers its management decisions after a district court hands down its verdict for the imprisoned Samsung Electronics Vice Chairman Lee Jay-yong on Aug. 25. 

Depending on the outcome of the verdict, Samsung stands at a crossroads of whether the group restores its management to normal or staggers on with significant disruptions in its global strategies, caused by a management vacuum stemming from the absence of the heir-apparent of the business group. His father, Lee Kun-hee, has been bed-ridden since he suffered a heart attack. 

Junior Lee is currently in prison for his involvement in a scandal surrounding former president Park Geun-hye’s confidant Choi Soon-sil. Business sources said the plaintiff and defendant are expected to continue their legal battle into early next year as either side appeals the verdict. If Samsung Group’s management vacuum is prolonged for a long period of time, they said things couldn’t be worse for the group due to uncertainties, caused by management difficulties in Korea and abroad. 

Samsung Electronics Vice Chairman Lee’s trial will have an immediate adverse impact on the group’s subsidiaries. For instance, Samsung Securities’ scheme to become an investment bank has suffered a setback. A regulatory filing issued by the company recently said Samsung Securities has been informed that it has to put off its screening of a licensing application for a note-issue business submitted in July due to the pending conclusion of a court case against its major shareholder. 

Making matters worse, Samsung Group’s future management is unpredictable due to the management vacuum, business analysts said. A look into the progress of the group M&As indicates that management risks caused by the management vacuum have been felt in that area as well. 

Vice Chairman Lee’s absence is disrupting global strategies being implemented under his stewardship or even making it inevitable to revise their course. 

Samsung Group, whose annual sales stand at about 300 trillion won, has seen its management clock slow almost to a standstill. Its global strategies have been ratcheting down from an expansion mode. 

First, Samsung’s strategies to acquire companies specializing in certain areas through M&As are impossible due to Vice Chairman Lee’s absence. 

In fact, Samsung Electronics has made no noticeable M&As for eight months following last November’s acquiring of Harman, a global leader in connected car technology. 

The company has bought technology startups, but they are equivalent to the securing of technology and manpower rather than M&As. The uncertainties caused by the management vacuum are more likely to result in large-size investment plans being put on hold, according to analysts. For Samsung, it’s equivalent to lost decades.

Concern has been mounting in Korea and abroad that Samsung Electronics might be following the steps of the rise and fall of Sony, business and industry analysts said. 

Matt Weinberg, former U.S. president Obama’s appointee in the Office of Investment and Innovation, contributed to an article, titled “Will Samsung become Sony 2.0?” in which he said Samsung’s position as an innovation leader is being shaken by the recent uncertainties and Korea’s political upheaval. The outcome of the trial of Samsung heir-apparent Vice Chairman Lee will inevitably influence the future of Samsung Electronics, an archrival of Apple. 

Steve Forbes, Chairman and Editor-in-Chief of Forbes Media, wrote an article on Aug. 16 stating that North Korea’s radical actions are not just the one thing imperiling Korea, but the nation’s excessive reform measures could also impair the competiveness of the country’s major industries. 

Forbes said Korea’s success has depended on support from family-owned conglomerates or chaebeols like Samsung, Hyundai, and LG, but they are now enshrouded by political dark clouds. 

He claimed that it is unfair and dangerous to judge incumbent business leaders for sticking to the business modes of previous generations. Businessmen the likes of Vice Chairman Lee, who have been trapped in old systems, are in a “no-win” situation, said Forbes, citing Lee’s arrest in the implication of Korea’s precedents related to cozy relations between politicians and businesses.   

Ike Brannon, a former economic adviser for U.S. Senate Financial Committee, contributed an article to the media recently in which he said no one is above the law, but the demanding of a 12-year prison term for Lee is apparently aimed at taking punitive actions. A company (Samsung), which be in a crisis, is at a loss, he added. 

An independent counsel demanded a 12-year prison term for Lee on the charge that he provided or promised to offer 43.3 billion won to the ex-president Park and her close friend Choi. He was charged with bribery, and four other charges, including the smuggling assets overseas. The counsel said he funneled 7.8 billion won to Germany to support Choi’s daughter’s horseracing training. 

Choi Jin-young, a lawyer, said the special counsel focused on proving the bribery accusation, and demanding more than five years in jail was preposterous. He said it was like the tail wagging the dog. Noh Young-hee, a lawyer, said bribery brought other criminal acts that led to overall disruption of state affairs, and the maintaining of collusive ties between policies and business, which is being taken seriously by the counsel. 

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