[News analysis] Will Lee Jae-yong's absence lead to reduced investment or chaebol reform?

Claims of the Samsung leader's incarceration resulting in a "management vacuum" seem unfounded

Samsung Electronics Vice Chairman Lee Jae-yong heads to the Seoul High Court on Jan. 18 for his trial. (Kim Hye-yun, staff photographer)

Samsung has initiated an emergency management system after the sidelining of its leader, Samsung Electronics Vice Chairman Lee Jae-yong, who was taken into court custody after being sentenced to two years and six months in prison for bribery and embezzlement.

While some observers have been fretting over the possibility of a corporate “management vacuum,” others have suggested the situation could help usher in reforms for Samsung and other South Korean chaebols. The question of Lee’s future is also likely to emerge as a topic of debate.

Roadblock to new investment vs. Opportunity for chaebol reform

After being taken into custody on Jan. 18, Lee, who has vowed to create a “new Samsung,” may have to manage the conglomerate from behind bars once again.

In the absence of the group leader, there are likely to be fewer meetings of the CEOs of the group’s 59 affiliates, with each company taking action on its own. Samsung’s business support task force (under President Chung Hyun-ho), which was set up after the dissolution of the Future Strategy Office, is likely to handle confusion in the wake of Lee Jae-yong’s incarceration.

But given criticism that this task force essentially represents the resurrection of the Future Strategy Office, observers think the task force is unlikely to actively oversee the group’s direction.

Lee had been pivoting to a “new Samsung era” by expanding operations in the “industries of the future” after he explicitly assumed control of the group following the death of his father, Lee Kun-hee, in October 2020. As such, there are serious concerns inside Samsung that the group will lose momentum. According to these insiders, Lee’s imprisonment could interrupt plans for investment in new industries at a time of big mergers and acquisitions by global semiconductor firms and rapid changes in the car battery industry.

In the “2030 semiconductor vision” unveiled in April 2019, Lee promised to invest 133 trillion won (US$120.51 billion) in system semiconductors so as to make Samsung Electronics the world’s leading firm in the field by 2030. “His role as an owner-manager has been curtailed. He only gets 10 minutes for visitors,” said an obviously flustered senior official at Samsung.

But when Lee was previously jailed between February 2017 and February 2018, fears about a management vacuum turned out to be overblown. That’s evident from the performance of Samsung affiliates.

In particular, business conditions couldn’t be better for Samsung Electronics, which is enjoying a “super cycle” in semiconductors, with demand for electric vehicle (EV) chips outstripping supply.

“The detention of a chaebol head hardly ever causes a major vacuum in management. Samsung needs to have a task force draw up a plan for a new team of professional managers who can serve in the place of the chaebol head [Lee Jae-yong],” said Lee Chang-min, a professor of economics at Hanyang University.

Some predict that Lee Jae-yong’s imprisonment could mark a major turning point — and a new beginning — in the history of Samsung and chaebol reform.

“This has taught other companies that even the person controlling Samsung Electronics goes to prison if he breaks the law — no matter how much the business community asks for leniency and resorts to fearmongering about a ‘management vacuum,’” said Kim Woo-chan, a professor of business management at Korea University.

“Since Samsung and Lee Jae-yong in particular occupy the pinnacle of economic power, this can be seen as a monumental milestone in chaebol reform,” said Lee Chang-min.

Even granting that Lee continues to make long-term strategic decisions about group management, some think his time in prison will cause authority to shift to the group’s professional managers and will reinforce their control of the group’s management.

Could Lee’s sentencing lead to an employment ban?

There’s likely to be a debate about whether Lee is subject to the employment restrictions mandated by the Act on the Aggravated Punishment of Specific Economic Crimes.

The act states that individuals convicted of economic crimes such as embezzlement or breach of trust involving a sum of at least 500 million won (US$452,981) may not be employed at companies that are closely related to the offense for which they were convicted. For individuals who are sent to prison for those crimes, the employment ban lasts for five years after their term expires or they are pardoned.

The law does stipulate, however, that this ban can be waived with the approval of the justice minister, suggesting that Lee could keep his position at Samsung if the Ministry of Justice (MOJ) accepts a petition for a waiver.

“Once we receive a waiver petition, the justice minister will decide whether to grant it, after consulting with the committee responsible for overseeing specific economic crimes,” an MOF official told the Hankyoreh over the phone.

The official said this isn’t the time to discuss the possibility of such a petition being accepted. “If Samsung Electronics appeals the high court’s ruling, the employment ban wouldn’t apply, since Lee’s ultimate sentence would remain undecided.”

By Cho Kye-wan and Song Chae Kyung-hwa, staff reporters

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