April 26, 2024

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[THE INVESTOR] Samsung Group is bracing for a leadership vacuum with further delays in key decisions after its de facto leader Lee Jae-yong was arrested Feb. 17 on bribery charges.

Even if the Samsung heir is acquitted in the trial, the nation’s largest conglomerate will be operating without a key decision maker for up to seven months. 

After prosecutors started probing Samsung’s possible involvement in the snowballing influence-peddling scandal surrounding President Park Geun-hye and her close aides, the group has delayed an annual executive reshuffle and new recruitment and related overhaul of business divisions across affiliates.

Industry watchers say new growth engine businesses could be especially hit hard. Samsung Electronics, the group’s crown jewel, may be able to maintain its leadership in its potent smartphone and chip businesses but the leadership vacuum is expected to weigh on new technology drives such as those on artificial intelligence and Internet of Things.

Plans for new investments into semiconductor, display and biotechnology businesses are also likely to be stalled for a while amid rivals pushing hard to take on the market leader.

“Most of the management decisions will be made by CEOs at each affiliate. But some big decisions on large-scale investments and new growth engine businesses will be delayed,” said a Samsung executive on condition of anonymity.

“We will make all-out efforts to minimize the impact.”

Lee, vice chairman of Samsung Electronics, has been leading the group since his father Chairman Lee Kun-hee was hospitalized in May 2014.

The son was detained on Feb. 17 right after a Seoul court issued an arrest warrant for him citing new charges and additional evidence. The first request last month was rejected due to lack of evidence. 

Lee is suspected of having ordered his top aides to give a combined 43 billion won (US$36.30 million) to President Park’s crony Choi Soon-sil in return for business favors in the process of the group’s leadership transfer to a new generation.

The jailed Choi is accused of having influenced the state-run National Pension Service to support the 2015 merger of Samsung C&T and Cheil Industries that faced resistance from some minority shareholders. The controversial merger was considered a crucial step for the heir apparent to secure more control over Samsung Electronics and other key affiliates.

But Samsung denied all the allegations, saying the contributions were made at the request of the president for the public purpose of the foundations controlled by Choi.

“We will do our best to ensure that the truth is revealed in future court proceedings,” Samsung said in a statement. 

The third-generation Lee is the first Samsung chief to be put behind bars. 

His father received a suspended prison sentence for creating slush funds in 1996. He stepped back from the management role in 2008 for two years after he faced tax evasion charges.

Industry watchers predict the Future Strategy Office, the de facto control tower, will take more responsibility in making key decisions for some time. But uncertainties are looming at the team as prosecutors are also considering an arrest warrant for top executives Choi Gee-sung and Chang Choong-ki.

By Lee Ji-yoon and Kim Young-won
(jylee@heraldcorp.com) (wone0102@heraldcorp.com)