[Editorial] Lee Jae-yong's prison sentence finally sets precedent that the chaebol are not above the law

Samsung Electronics Vice Chairman Lee Jae-yong heads to the Seoul High Court on Jan. 18 for his trial. (Yonhap News)

Samsung Electronics Vice Chairman Lee Jae-yong was taken into custody on Jan. 18, after being sentenced to two years and six months for charges connected with Korea’s influence-peddling scandal.

Lee had been sentenced to five years by a district court only to be released on a suspended sentence on appeal. After the Supreme Court threw his case back to the high court, he has finally ended up behind bars.

Since the Supreme Court recently confirmed the prison sentence for former President Park Geun-hye and since Lee’s sentence is almost certainly the final word in his trial, justice has basically been served in the influence-peddling scandal. This was made possible by the Koreans who flocked to the candlelit protests in 2016 to demand reform of the chaebol, Korea’s family-owned conglomerates.

The chaebol need to view Lee’s sentence as an opportunity to push through reform initiatives and to uproot backward practices, including a high-handed attitude about corporate management and illegal schemes to keep corporate succession and leadership within the chairman’s family.

The court’s ruling breaks with the “three-five rule,” the practice of giving a lenient three-year sentence suspended for five years to chaebol heads, no matter how severe the crime.

The anachronistic economic arguments that have long served as a shield for the chaebol weren’t even mentioned in the court’s rationale for its sentences. This sets a precedent that going easy on the chaebol to avoid a management vacuum or economic fallout no longer passes muster in Korean society.

A prison sentence of two years and six months is even lighter than the lowest sentence suggested in guidelines provided by the Supreme Court’s sentencing committee, considering that Lee was convicted of bribery and embezzlement to the tune of 8.6 billion won (US$7.8 million).

While the court said it had reduced Lee’s sentence in light of the difficulty of turning down the president’s request for a bribe, that sentence obviously doesn’t meet the public’s expectations of legal justice. Even so, it’s a step toward the principle of equality before the law since chaebol heads have generally avoided punishment altogether by receiving delayed sentences.

Korea has a long history of corporate-government collusion, a history in which law-breaking by Samsung and other conglomerates has been often enabled by political forces and even excused on the grounds of political pressure. The time has come to put that dark history behind us.

The court said that Lee “aggressively bribed” Park and “implicitly requested that Park use her presidential authority to aid his succession of the Samsung Group.”

“It is very unfortunate that Samsung, which is Korea’s biggest company and a proud leader of global innovation, has been implicated in crimes every time that political power changes hands,” it added.

The court’s criticism doesn’t only apply to Samsung. Rather than advancing the groundless and unreasonable argument that this ruling will have a negative impact not only on Samsung but on the Korean economy as a whole, the business community needs to take on the mission demanded by the current era.

When the last arguments were made in his trial last month, Lee used his final statement to pledge his commitment to legally compliant management, even shedding tears to stress the point. He needs to keep his promise to the Korean public, regardless of the outcome of these judicial proceedings.

Lee also needs to bear in mind that the court found that Samsung’s newly established legal compliance oversight committee wasn’t effective enough.

Starting point for reforming corporate-government collusion

Considering that the bribery and embezzlement in this trial was linked to Lee’s request for help with inheriting control over the Samsung Group, Lee and Samsung need to give serious thought to fundamental ways to improve corporate governance.

One way would be to leave the everyday business of management to qualified professional candidates and for Lee to sketch the big picture of group management as the majority shareholder and chair of the board of directors. Doing so would let Lee keep his promise not to pass down control of the group to his children, a promise he made in his public apology in May 2020.

There’s a practical need for such measures because the Act on the Aggravated Punishment of Specific Economic Crimes bans Lee from working at Samsung for five years after he completes his prison sentence.

Lee’s prison sentence should serve as a warning for the heads of other chaebol. This should be taken as an opportunity to mitigate “owner risk,” or in other words the possibility of companies being harmed by their owners’ corrupt or illegal actions.

Furthermore, this presents an opportunity to tackle the chronic flaws with Korea’s chaebol, including a management style in which chaebol heads wield unchecked authority despite only holding a small portion of shares, as well as semi-legal and illegal schemes to hand down corporate control to the next generation.

Please direct comments or questions to [english@hani.co.kr]