Lee Jae-yong’s court arrest… Samsung, watch zero again in 1079 days

Input 2021.01.18 15:04 | Revision 2021.01.18 15:11

Jaeyong Lee Samsung Electronics (005930)As the vice-chairman was sentenced to two years and six months in prison on the 18th and arrested in court, Samsung was again in a business blank situation. Vice-Chairman Lee was released on probation on February 5, 2018, on February 5, 2018, 353 days after his first arrest on February 17, 2017, and this time he was imprisoned again after 1079 days.

As Vice-Chairman Lee was arrested, disruptions were inevitable for businesses requiring the owner’s decision, such as immediate large-scale investments, overseas mergers and acquisitions (M&As), and entry into new businesses. In the economic world, there are concerns that if Samsung, the number one in the business world, is hit, it will have a negative impact on the Korean economy.

Samsung Electronics has not been able to engage in such an M&A since Vice Chairman Lee was caught up in the Gukjeong Nongdan trial. Samsung’s large-scale M&A was the last time it acquired Harman, a US automotive electronics company, for $8 billion in November 2016. Vice-Chairman Lee has not been able to travel abroad until now after going on business trips to Europe and Vietnam in the Netherlands and Switzerland last October due to successive trials.

In 2018, Samsung Electronics announced that it will invest 180 trillion won in future growth engine industries such as artificial intelligence (AI), 5G mobile communication, bio, and automotive electronic equipment (electronic equipment) businesses over the next three years. However, this investment strategy has also stalled as the court proceeds. In the industry, there are concerns that Samsung Electronics may fall behind in competition as global semiconductor companies are increasing their competitiveness through M&As.

Samsung faced the worst situation again in about three years of the absence of the total. The Future Strategy Office, which served as the group’s control tower, was disbanded in 2017 as Vice Chairman Lee became involved in the Park Geun-hye government’s Gukjeong Nongdan case. The group presidential meeting held every week before Vice Chairman Lee was arrested in February 2017 has also been suspended. The bigger problem is that it is not possible to predict what impact Lee’s absence will bring to Samsung in the future. The analysis is dominant that there is a limit to only the command of professional managers due to the nature of the semiconductor business that requires quick decision-making such as large-scale investments and M&As.

The business community pointed out that Samsung faced a crisis even when the late Chairman Lee Kun-hee took responsibility for a special prosecutor’s investigation on the under-named account and left the chairmanship in April 2008. Until Chairman Lee returned to the front line in management in March 2010, Samsung operated the professional management system, but the selection of the ‘5 new types of business’, which is the future business, was delayed in the meantime.

Not only the Samsung Group, but also about 2,200 partners doing business with Samsung are in an uncertain situation. As Samsung pointed out semiconductor, AI, 5G, and bio as food for the future, it was expected that large-scale investments would be made in related fields, but the plan would be disrupted as Vice-Chairman Lee is arrested.

In addition to the Gukjeong Nongdan trial, there are still trials related to the succession of management rights, so it will have to continue to fight in court for years to come. An executive of an economic group said, “Samsung’s concerns about the’lost 10 years’ have come true,” and said, “Even if you run in-house management, it will not be easy to make large-scale investment decisions.”