Samsung's Phones Are Sick, But The King Of Its Empire Is Screwed

In a historic move, a South Korean court convicted Lee Jae-yong -- known as Jay Y. Lee in the Western world -- of bribery and embezzlement on Friday. Mr Lee has been sentenced to five years in prison, and the future of leadership at Samsung is now in question. For South Koreans, the verdict signals a new era of accountability for the handful of powerful families that control more than 80 per cent of South Korea's gross domestic product.

Samsung heir Lee Jae-yong. Photo: Getty

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Lee is the son of Lee Kun-hee, who is currently the chairman of the Samsung Group but has been in a coma for about three years. Since his father fell ill, the younger Lee has been seen as the de facto leader of Samsung. In January, he was arrested and charged with crimes connected to a massive corruption scandal that led to the impeachment of South Korean President Park Geun-hye in December of 2016. Recently, the country's courts have taken a tougher stance on corruption and Lee's significant sentence would have been unheard of just a few years ago.

Ironically, the bribery at the heart of the case against Lee is directly linked to his status as heir to the throne of Samsung. In South Korea, Samsung is known as a chaebol -- a term that's similar to a conglomerate. The company's holdings most famously include Samsung Electronics, but also Samsung Life Insurance, and other businesses that deal in pharmaceuticals and shipping. All told, Samsung is responsible for about one-fifth of South Korea's exports. The case against Lee involves $US6.4 million ($8 million) in bribes and gifts channelled through an associate of the disgraced South Korean president and two foundations. In order for Lee's family to ensure dynastic succession, they needed a complicated merger to be approved between Cheil Industries and Samsung C&T. South Korea's National Pension Service (NPS) held a minority stake in both companies and was ultimately a crucial vote for securing Lee's power.

Lee's father -- the current chairman of Samsung -- has been convicted of similar crimes on two occasions in the past, but was ultimately pardoned. According to the New York Times, leaders of six of the 10 largest chaebols have been convicted of white-collar crimes, but have always been pardoned or had their sentences commuted. But public sentiment in recent years has shifted towards a belief that the chaebols are holding back startups and entrepreneurship while wielding far too much power over the country's future. The certainty of a pardon for Mr Lee is in doubt given the political climate and the fact that the new president, Moon Jae-in, ran for office on a platform of punishing corruption.

Lee's defence hinged on the argument that he wasn't particularly involved in day-to-day operations at Samsung and the four other executives from the company who have been convicted were primarily at fault. Whether that's true or not, Lee has been considered a crucial navigator of long-term strategy and the numerous business relationships that Samsung maintains around the globe. As the company bounces back from the exploding Galaxy Note7 disaster and prepares to launch the Note8, Lee's absence could kick off significant in-fighting for control of the company.

Samsung's long-awaited Note8 is almost here, and the phablet actually seems to have a bright future ahead of it. Unfortunately, we cannot say the same for the head of Samsung's empire: Barring a sudden turn of events, Lee appears to be totally, unequivocally screwed.

[The New York Times]

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