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[News Focus] Is Samsung really doomed without its heir?

Tech giant will not give up on Lee, but his succession will face strong backlash, experts say

With the sentencing of Samsung’s heir apparent Lee Jae-yong slated for next week, there have been growing speculations over whether the tech giant will change its previous strategy on consolidating his leadership.

There is general consensus among Samsung insiders as well as chaebol reformists that the conglomerate will not give up on Lee and will try to put his succession back on track. But they differ on the question of whether Samsung does not have a future without him.

Samsung Electronics (Park Hyun-koo/The Korea Herald)
Samsung Electronics (Park Hyun-koo/The Korea Herald)

Samsung has no “contingency plan” even if the worst scenario happens to Lee, a Samsung Electronics executive was quoted as saying by Yonhap News Agency on Monday, indicating that Lee’s position is irreplaceable.

The prosecution has requested 12 years in jail for the Samsung Electronics vice chairman on charges of bribery, perjury and flight of capital. The best case for the 49-year-old billionaire will be for the court to find him innocent on all charges, or at least not guilty on the accusation of bribery.

The bribery charges against Lee, based on the circumstantial evidence of his secret meetings with former President Park Geun-hye, is at the center of the trial, which could put him in jail for six to seven years.

The court’s decision is also a prelude to the fate of the ousted president, who is charged with pressuring the tycoons of Korean conglomerates in exchange for favors given to her longtime friend Choi Soon-sil.

Even if the worst happens, it is unlikely that Samsung Electronics’ leadership structure will collapse, as the tech giant has three CEOs that each control its semiconductors, consumer electronics and mobile businesses.

Along with Lee, the three CEOs are also registered members of the boardroom. The company also has 13 presidents managing its daily operations.

Despite its heir apparent facing the most humiliating trial in Samsung history, the crown jewel of the conglomerate, Samsung Electronics, was set to become the most profitable company in the world in the second quarter, beating Apple for the first time. The share price of Samsung Electronics has surged 32 percent this year.

“Samsung is not a one-man company but a global firm managed by CEOs who are real experts in their respective fields,” a Samsung official said.

What Samsung fears is the uncertainty Lee’s absence would cause in the long term.

Since the late 1980s, Samsung has been under the leadership of Lee’s father, Lee Kun-hee, who spearheaded Samsung Electronics along with other affiliates ranging from finance to biopharmaceuticals. The chairman’s son has been expected to carry on.

“I think he has played an important role, such as by seeking a big picture for Samsung by building global networks with entrepreneurs in Silicon Valley, something that other CEOs tied up with daily operations can’t do,” the Samsung official said. He denied rumors that Samsung’s merger and acquisition plans are on hold because Lee is in jail.

The heir apparent had been ready to test his management skills and prove to the world that he is the legitimate leader and face of Samsung, the official added, but Lee did not get the chance to do so -- as he had mentioned in his plea during a hearing.

Meanwhile, chaebol reform activists, such as Park Sang-in, a professor at Seoul National University’s Graduate School of Public Administration, contend that Samsung’s assertions regarding Lee being a prepared leader and the future of Samsung contradict its logic at court.

Lee denied all of the charges against him and said that he was not aware of any decision to support Choi Soon-sil’s daughter. Choi Gee-sung, former head of Samsung’s now defunct Corporate Strategy Office, also testified that he had not told Lee about the decision he had made, supporting Lee’s claim of innocence.

“Samsung calling Lee an irreplaceable leader for the company, but claiming that he was not aware of its decision (made under the request of ex-President Park) at the courtroom is very contradictory and an outdated method to protect the heir,” said Park, the author of “How South Korea Can Survive a Samsung Electronics Collapse” (2016), a comparative analysis of Samsung and the Korean economy with cases of Nokia and others.

Rather, “the trial of the century” is expected to change public perception toward chaebol. Despite their contributions to the South Korean economy in the past, chaebol’s hereditary succession of power will no longer be blindly accepted by people here, he said.

“People will start to question whether it is right to condone chaebol’s hereditary succession which has been taking place through abnormal processes by evading tax and regulations. If Lee gets a hefty sentence, I believe that it would signal the end of chaebol’s transfer of power between generations.”

Rumors that Lee’s sister Lee Boo-jin might fill in for her brother still remains unlikely, as she has no “allies” within Samsung Electronics and does not have enough power or shares to control the tech giant. However, Lee’s vacancy is likely to prompt an ugly feud among siblings and their mother’s family, Park said.

“A dramatic family feud will occur, further complicating Lee’s succession, as the children of the chairman is to get equal shares, while their mother gets more,” he said.

Hong, the mother of Lee Jae-yong, holds 0.77 percent of Samsung Electronics shares. But according to civil law, Hong is entitled to inherit her spouse’s assets, which includes a 3.54 percent stake in Samsung Electronics and a 20 percent stake in Samsung Insurance -- 50 percent more than her three children.

Lee Jae-yong holds 0.58 percent, while his sisters have none.

Their father, Lee Kun-hee has been hospitalized since 2014 after suffering a severe heart attack. The tycoon has been receiving treatment at Samsung Medical Center in southern Seoul.

The chairman has disappeared from the public eye since then. He stepped down from his post as the member of International Olympic Committee last week.

By Cho Chung-un (
Korea Herald daum