Seoul - The
long-orchestrated plan to cement Jay Y. Lee’s position atop Samsung Group may
put him in jail instead, raising questions about who would step in to run South
Korea’s biggest conglomerate in the aftermath.
Prosecutors
are seeking Lee’s arrest on allegations including bribery and embezzlement,
which if proven could prompt him to relinquish duties at the family business.
Potential replacements include executives running key divisions of the dominant
electronics business, as well as a sister - hotel executive Lee Boo-jin. While
a long shot, her anointment would mark a seismic shift in the way the nation’s
patriarchal empires are run.
After
spending years following his father’s footsteps to the chairman’s seat of Samsung
Group, Lee is trying now to avoid the missteps that triggered his father’s two
criminal convictions. Even if the accusations against him involving South
Korea’s president are proven in court, it’s still possible Lee could return to
the company later or even call the shots from behind bars, just as executives
from Hyundai Motor and SK Group have done.
“Chaebol
executives have a history of managing from the jail, whether it be via lawyers
or secretaries visiting them,” said Lee Kyung-mook, a professor at Seoul
National University’s Graduate School of Business.
Read also: Samsung chief faces long day
Samsung
declined to comment when asked about a potential leadership vacuum. A court
hearing is scheduled for Wednesday to determine whether to approve the
prosecutor’s request for an arrest warrant. Whether the warrant is granted or
not, prosecutors would continue their probe with a possible indictment coming
later.
Potential arrest
Lee’s
potential arrest in the scandal surrounding President Park Geun-hye is another
calamity for the vice chairman of Samsung Electronics, the largest maker of
mobile devices. Last year, the company pulled its Galaxy Note 7 smartphone off
the shelves because some devices burst into flames. The debacle cost
Suwon-based Samsung an estimated $6 billion and a competitive advantage before
Apple released its iPhone 7 models.
Lee, 48,
has had trouble matching the success of his father, Lee Kun-hee, who transformed
Samsung Electronics from a copycat appliance maker into a global powerhouse in
TVs, smartphones and memory chips. The elder Lee - South Korea’s richest man -
suffered a crippling heart attack in May 2014, and Samsung shares fell that
year and the next before recovering in 2016.
“It’s a
perilous practice that a person can take over a company just because he or she
was born to a successful father,” opposition lawmaker Park Yong-jin said. “The
biggest problem with our economy is that people with unproven skills run its
biggest companies.”
Read also: A Presidential scandal and Samsung succession
Lee doesn’t
play the role of day-to-day manager, depending rather on co-CEOs and other top
managers to handle those responsibilities. But employees and shareholders
depend on him to provide strategic guidance when it comes to decisions like the
next big bets in technology or potential acquisitions.
After the
elder Lee’s collapse, executives including J.K. Shin, who is in charge of the
smartphone division, handled daily operations for Samsung Electronics.
The son became
de facto leader of the group, which then embarked on an intricate
reorganization to solidify his control. Prosecutors want to know if that effort
involved making payments to a presidential confidante in exchange for
government support.
Candidates
If Lee is
imprisoned, he could be replaced by Samsung Electronics’ co-CEO Kwon Oh-hyun, a
64-year-old who leads the semiconductor and display businesses. The successes
of those two divisions helped propel Samsung to its best operating profit in
three years during the quarter ended December 31.
Another
candidate is Yoon Boo-keun, who heads the consumer-electronics unit
encompassing TVs and appliances.
“He’s part
of the trio with Lee and Kwon that has run Samsung Electronics,” said Park
Ju-gun, president of Seoul-based corporate watchdog CEOSCORE. “Samsung could be
run as if that trio were still intact.”
It also
would be “natural” for Lee Kun-hee’s eldest daughter to be considered, said
Chung Sun-sup, who runs corporate researcher Chaebul.com.
Lee Jae-yong, a vice chairman of Samsung Electronics arrives for hearing at the National Assembly in Seoul, South Korea in this file image. AP Photo/Lee Jin-man
Lee
Boo-jin, 46, is CEO of the luxury Hotel Shilla chain, which is on track to
post revenue growth for a sixth straight year, according to data compiled by
Bloomberg. She owns 5.5 percent of Samsung C&T, one of the biggest
shareholders in Samsung Electronics.
“Some
speculate she could practically take over, but being a large shareholder
doesn’t mean she could run a massive company like Samsung Electronics,” Chung
said. “Realistically speaking, Kwon may be the one.”
Lee
Kyung-mook, the Seoul National University professor, also identified her as a
candidate to manage the conglomerate, albeit temporarily.
A daughter
taking over Samsung would break with tradition in South Korea, where sons
succeed fathers at the chaebol that dominate the economy. Still, Samsung has been
a trailblazer in doing away with old business practices and hiring women
aggressively.
“Lee’s
sister may briefly take the reins, but there’s little chance she’d take over
permanently given she has fewer shares in the firm than her brother,” the
professor said.
The
youngest surviving daughter, Lee Seo-hyun, is an executive at Samsung C&T.
In the
meantime, Jay Y. Lee may miss the window of opportunity to succeed his father
as parliament moves to make it harder for Samsung to use its own shares to help
him consolidate control, said Heo Pil-seok, CEO at Midas International Asset
Management in Seoul. That could make the stock more volatile.
Park, the
lawmaker, submitted a bill nicknamed the “Jay Y. Lee Law” to prevent financial
firms from supporting the types of internal mergers orchestrated to help Lee
boost control.
“The
corporate governance at Samsung could remain awkward for an extended period of
time, and that would increase uncertainties,” Heo said.
Scandals
The elder
Lee faced his own scandals - a 1996 conviction for bribing a former president
and a 2008 conviction for embezzlement and tax evasion. Both times, he was
pardoned.
That
history may work against his children, and Jay Y. Lee acknowledged publicly
that someone else may take over the collection of about 60 divisions whose
combined revenues equal about one-fifth of South Korea’s gross domestic
product.
During a
parliamentary hearing before President Park’s impeachment, he was asked whether
he would surrender management control of Samsung.
“I will
hand it over if there is someone better than me,” he said. “I will hand it over
at any time.”