18 January 2017
Exploding washing machines and Note 7 smart phones catching fire due to faulty batteries are not the only problems for Samsung. South Korea’s special prosecutor sought an arrest warrant for Jay Y. Lee, the heir to the head of Samsung Group. Lee made donations amounting to $36.42 million to organisations linked to Choi Soon-sil, a friend of the president who is under impeachment. In return, he sought government backing for a merger of two Samsung affiliates, Samsung C&T and Cheil Industries, in 2015.
South Korea’s National Pension Service had the deciding vote and supported the merger, which enabled Lee to increase control over Samsung Electronics (SSNLF) and helped him to succeed his ailing father as chairman of Samsung Group. Samsung controls about 70 companies with only 2% of the stakes through an extremely complicated system of cross shareholdings that analysts refer to as “circular ownership.” The merger was considered controversial as it did not provide for the protection of the minority shareholders.
Moon Hyung-pyo, Chairman of National Pension Service, is accused of pressuring the fund to support the Samsung merger when he was minister of health and welfare. He was indicted on charges of perjury and abuse of power. He is currently under emergency detention.
Conviction of business leaders is not new to South Korea. The business leaders receive lighter sentence or are pardoned. Some even had run the business from prison. South Koreans consider business leaders are essential for the economy and employment.
Samsung Group chairman, Lee Kun-hee, was convicted in 1996 for bribing politicians. He was sentenced for 2 years, but he was pardoned in the following year.
Hanwha Group Chairman Kim Seung-youn was sentenced for embezzlement in 2012. After a few months, he was pardoned and released from prison. Kim currently remains as chairman of Hanwha Group.
Chey Tae-won, chairman of SK Group, was convicted of embezzlement in 2013. He spent 2 years in jail. He managed the company affairs from the prison. He was pardoned in 2015 and was reinstated as SK chairman.
It is felt that Jay Y. Lee too will receive a lighter sentence or will be pardoned after a few months. Samsung accounts nearly one-fifth of the total exports of South Korea.