Why is Samsung’s billionaire scion Jay Y. Lee returning to jail?

*Samsung Group’s billionaire scion Jay Y. Lee’s absence resulting from complicated succession challenges may stall or complicate strategic, longer-term moves and investments in the company

Isola Moses | ConsumerConnect

Leadership crisis rocking Samsung, the world’s largest producer of memory chips, smartphones and consumer appliances, has continued to create a vacuum atop echeon of the company in recent times.

Jay Y. Lee, Samsung Group’s billionaire scion, has been sentenced to two years and six months in prison over bribery charges, concluding a trial that brought down a South Korean President and inflamed public outrage over the cozy relationship between government and business in the country, Bloomberg report said.

It was learnt that the case ─ and another being tried separately ─ centre on whether Lee and Samsung used illegal means to help him to assume the leadership and control of the company founded by his grandfather.

Again, report states the January 18, 2021, ruling creates a vacuum atop the world’s largest producer of memory chips, smartphones and consumer appliances at a time when the COVID-19 pandemic and escalating US─China tensions are intensifying competition in the industry.

Whereas Samsung’s daily business is run by an army of managers, Lee’s absence may stall or complicate strategic, longer-term moves and investments, according to report.

But, who is Jay Y. Lee? Lee, 52, is the Vice-Chairman of Samsung Electronics Co. and heir apparent to South Korea’s most powerful conglomerate. His father led the group for many years until he suffered a heart attack in 2014.

The elder Lee died October 25 after years in a coma, during which time his son became the de facto leader.

However, the succession has been complicated because the son cannot simply take over his father’s assets. South Korea has one of the heaviest inheritance taxes in the world. The Lee family’s wealth is estimated at about $30 billion, according to the Bloomberg Billionaires’ Index, and their tax bill has been estimated at about $10 billion.

What is the legal dispute all about?

South Korea’s special prosecutors first indicted Lee in early 2017 on charges of corruption, alleging that Samsung provided horses and other payments to a confidante of the former president to win support to help ease his succession.

The case inflamed opinion against the country’s powerful conglomerates, or chaebol, and triggered the impeachment of then-President Park Geun-hye.

Lee was initially convicted and sentenced to five years in prison, but the sentence was halved and then suspended in 2018 and he was released from jail.

Nonetheless, the Supreme Court in August 2019 overturned the lower court’s decision to suspend the mogul’s sentence and ordered a retrial.

That was delayed while prosecutors sought to remove one of the judges for allegedly favouring Lee, a request the Supreme Court denied.

Is he in custody?

Lee was taken back into custody January 18 after the verdict. Earlier, in June 2020, prosecutors had sought an arrest warrant to send Lee back to jail because of the separate but related investigation.

But the Seoul Central District Court rejected that request, saying prosecutors didn’t have a valid reason.

Shortly before, Lee had requested a civilian review panel assess the validity of his indictment, essentially trying to bypass the prosecutors.

The attempt to jail Lee was seen by some as a reaction to that request. The panel of outside experts recommended against an indictment, a symbolic victory for Lee.

But prosecutors ignored the recommendation ─ a rare move that could cost them public support.

That trial opened October 22 and may take as long as 18 months. It could stretch another two years with appeals.

What is that case about?

It’s also related to succession. Prosecutors indicted 11 people, including Lee and former Samsung executives after digging into the details of a controversial merger between two Samsung Group’s units in 2015.

The investigation kicked off after the financial regulator concluded that Samsung Biologics Co. intentionally violated accounting rules and inflated its value ahead of an Initial Public Offering (IPO).

Prosecutors suspect the violation was to justify the merger ratio between Biologics’ major owner Cheil Industries and Samsung C&T, which helped bolster the value of the heir’s stake in Cheil and his influence at Samsung Group.

What’s at stake for Samsung?

Samsung had largely continued business as normal during the years-long probe, and investors have been mostly unfazed.

Samsung Electronics’s shares racked up new highs throughout 2020 after the coronavirus pandemic drove memory chip and smartphone demand, defying the prosecutorial scrutiny and investigations into more than 100 group officials.

Its stock slid as much as 4 percent after the January 18 ruling, however. Lee’s jailing is a greater concern for Samsung because his absence would render it more difficult to make major decisions, such as mergers and acquisitions or extraordinary investments. Meanwhile, his frequent court appearances, now from jail, further complicate schedules.

But how does public opinion affect the situation?

Samsung fought not just for Lee’s liberty, but for its corporate reputation.

The allegations that it used gifts to buy government favor so one of the country’s richest men could take over his family’s company are so explosive they shook the political balance of the nation. Samsung and Lee remain determined to clear their names.

The scion made a rare, personal apology in May 2020, admitting past missteps and pledging not to hand leadership of the group to his children.

Samsung has also been very active in helping South Korea’s battle against the coronavirus, dispatching its own doctors to help in the fight and helping to ramp up production of testing kits.

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