What A Tech Leader's Corruption Conviction Means For Samsung And South Korea

Aug 25, 2017
Originally published on August 25, 2017 9:51 am

A court in South Korea has found the de facto leader of Samsung, Lee Jae-yong, guilty in a corruption case involving South Korea's former president. The court in Seoul sentenced the billionaire Lee to five years in prison on a string of corruption charges, including bribery, embezzlement and perjury. Here's what you need to know:

What's Lee going to jail for?

Lee, who also goes by the name Jay Y. Lee, was ensnared in the scandal that led to the historic impeachment and removal of South Korea's former president, Park Geun-hye, this March. At issue for Lee was whether he helped donate Samsung money to slush funds started by the president's consigliere in exchange for government support of a controversial Samsung merger.

The merger, which was approved, was good for the family control of the company, but widely seen as not favorable for shareholders. Ultimately the court ruled there was sufficient evidence that bribery was involved there. Samsung has now responded, saying it cannot accept this decision and it's confident Lee will be acquitted on appeal.

What does this mean for the future of Samsung?

In terms of its bottom line, possibly very little. Lee has been incarcerated for months as his trial has gone on. During that time, Samsung's business has been booming. It recently released its new Galaxy S8 phone, marked its strongest quarter in its history and overtook Apple as the world's most profitable tech company.

But this conviction raises bigger questions about the company's long-term direction, leadership and whether the group should continue to be a family-run dynasty. Lee is the third-generation head of a giant, publicly traded conglomerate, and critics say that kind of governance is outdated.

What does the downfall of the leader of South Korea's largest and most culturally significant company mean for the country?

This was closely watched by the public here because giant, dynastic conglomerates — or chaebol as they're called here — dominate the economy in South Korea. Chaebol literally translates to "wealth clan." And Samsung is the largest and most significant example of that. It not only makes electronics, but is also involved in shipping, insurance, pharmaceuticals, department stores, hospitals, even bakeries.

South Korea's economic miracle — leap-frogging from poverty to becoming one of the wealthiest countries in the world within a generation — happened because government and these conglomerates were so closely linked. But in recent years, the public has grown critical of how easily chaebols seem to get out of trouble. They have become avatars for cronyism and corporate excess. That's why this Jay Y. Lee case became symbolic in South Korea, where its business and government culture could be at a turning point. The majority of the public that voted in the current progressive president, Moon Jae-in, signaled it wants an end to the sense that business can buy off the government.

What happens next for Jay Y. Lee, the convicted leader of Samsung?

His lawyers say he will appeal the decision. They have maintained he was innocent and didn't know about the money being funneled while he was at the helm. Lee could be pardoned, but there's only an outside chance of this given the new president's support for overhauling chaebols. Lee's father, who famously ran Samsung with an iron fist, was twice convicted of business-related crimes like bribery, but got off with a suspended sentence and a pardon.

Jihye Lee contributed to this post.

Copyright 2017 NPR. To see more, visit http://www.npr.org/.

AILSA CHANG, HOST:

A court in South Korea has found the leader of Samsung guilty in a corruption case involving South Korea's former president. A Seoul court sentenced the billionaire, Jay Y. Lee, to five years in prison just hours ago. NPR's Elise Hu has been covering this from Seoul, and she joins us now to talk about the verdict. Hi, Elise.

ELISE HU, BYLINE: Hey there.

CHANG: So what exactly is Jay Y. Lee, the leader of Samsung - what is he going to prison for?

HU: A string of corruption charges - they include bribery, embezzlement and perjury. And Lee is ensnared in the scandal that led to the historic impeachment and removal of Park Geun-hye, who was South Korea's former president. At issue for Lee was whether he helped donate Samsung money to nonprofit slush funds started by the president's close aide in exchange for government support of a controversial merger. That merger was later approved. And it was seen as good for family control of the company but widely seen as not great for shareholders.

And ultimately, the court ruled there was sufficient evidence that bribery was involved there. Samsung has responded with a note from Jay Y. Lee's lawyer saying that they will not accept this decision and they're confident that they can get him acquitted on appeal.

CHANG: What does this conviction mean for Samsung's business, though?

HU: Well, in terms of the bottom line, possibly very little. Lee has been jailed, actually, for months as this trial has gone on. And during that time, Samsung's business has been booming. It just released its new Galaxy S8 phone, its flagship phone; marked its strongest quarter; and overtook Apple as the world's most profitable tech company.

But Ailsa, this conviction does raise some bigger questions about the company's long-term direction, its leadership and whether the group should really continue to be this family-run dynasty. Lee is the third-generation head of this giant publicly traded conglomerate. And critics here argue that that kind of governance is outdated.

CHANG: I mean, yeah, Samsung is South Korea's largest conglomerate. It not only makes electronics, it's also involved in shipping, insurance, pharmaceuticals, department stores. I mean, its reach is huge. So how does this very public downfall of its chairman reverberate throughout South Korea?

HU: Well, that's a great question. And that's exactly why it was closely watched by the public here because these chaebol, as they're called here, dominate the economy in South Korea. The word chaebol literally translates to wealth clan.

CHANG: Wow.

HU: And Samsung is the largest and most significant example of that. South Korea's economic miracle, leapfrogging from poverty to, now, one of the wealthiest nations in the world within a generation really happened because of chaebol or on the backs of chaebol. Government and these conglomerates were very, very closely linked. But in recent years, you know, there's been a lot more criticism of this because chaebols really seemed to get out of trouble really easily. And they've really become avatars for cronyism and corporate excess.

CHANG: All right. That's NPR's Elise Hu speaking to us from Seoul, South Korea. Thank you, Elise.

HU: You bet. Transcript provided by NPR, Copyright NPR.