(Bloomberg) -- Samsung Electronics (KS:005930) Co. heir Jay Y. Lee returned to court Friday to answer bribery charges that could land him in jail, only to sit through a lecture about how he can better run Korea’s largest company.
Lee should study how U.S. companies establish systems to prevent crime and take inspiration from how Israeli businesses drive innovation through reform, said Chung June Young, the judge presiding over the case. The heir apparent to the world’s largest maker of smartphones and chips listened attentively but didn’t take the stand. Dressed in a somber black suit with a gray tie, the tech mogul leaned toward the podium as the judge delivered his comments to a packed courtroom in Seoul.
Three years after explosive allegations of graft and corruption brought down the government of Asia’s fourth-largest economy, South Korea’s chaebol culture has again come under the microscope. The retrial of Korea’s best-known billionaire over expanded corruption charges reboots a landmark case that led to the impeachment of then-president Park Geun-hye and inflamed popular anger over the power of Korean conglomerates, also known as chaebols. The charges, which Samsung (KS:005930) and Lee have previously denied, threaten to potentially throw Lee back in jail.
“If only Samsung’s internal compliance system was such that even the company’s leader would fear it, then not only the defendant but also President Park and Choi Seo-won could not have thought of the crime,” the judge said, referring to a confidante pf Park’s who became central to the case. “As the head of a company representing our country, I hope you will feel responsible and humbly accept the results of this trial.”
The latest chapter in the legal drama is kicking off at a sensitive time for the half-century-old tech behemoth. Samsung (KS:005930) is confronting heightened uncertainty from a lingering trade war between the U.S. and China as well as a spat between South Korea and Japan, both of which complicate its outlook and supply chain. A rising tide of technology like fifth-generation mobile networks and artificial intelligence is also opening up new opportunities for eager Chinese rivals, who are spending lavishly to catch up to Samsung and its cash-cow businesses of semiconductor and display manufacturing.
Read more: Why the Fate of Samsung’s Billionaire Heir Turns on Horses
The appeals court that decided to release Lee in 2018 from jail, where he’d spent about a year after his initial arrest, will decide his final sentence over the course of the next few months. Prosecutors and Lee’s attorneys will fight over whether there was a succession plan in place for Samsung (KS:005930) -- a key point that prosecutors say was a motivation behind the alleged bribes. Lee’s lawyer said he will mainly focus on the extent of defendants’ sentences.
Unless new evidence emerges during the retrial, the appeals court is expected to rule in line with the decision of Korea’s Supreme Court, which found that Lee had used three horses and additional funds, via an intermediary, to bribe President Park while seeking political support for his succession as Samsung (KS:005930) chief. This would mean altering Lee’s presently suspended prison sentence.
The total amount of alleged bribery determined by the top court, including all three equines, carries a minimum sentence of five years, which cannot be suspended in the same way that Lee’s existing sentence has been. Media coverage in Korea, however, has centered on Article 53 of the Korean Criminal Act, which stipulates there could be a discretionary mitigation of the punishment “when there are extenuating circumstances.” In Lee’s case, the damage to Samsung (KS:005930) -- crucial as it is to Korea’s economy -- could be presented as grounds to keep him out of prison.
Even in the event of an unfavorable ruling, the 51-year-old Samsung (KS:005930) scion would still be able to appeal to the Supreme Court one more time, which could take another year. To avoid such a protracted legal battle, people in and out of Samsung have expressed hope that the court may reduce the punishment and slash the sentence to a suspended 30-month term.
Samsung (KS:005930) Billionaire Heir to Cede Board Seat Before Legal Probe
Samsung (KS:005930), the world’s largest memory chip and smartphone maker, has an army of senior managers who can run its day-to-day operations, according to Park Ju-gun, president at corporate research firm CEOScore. Lee could continue his management even in prison and come back as a leader when he’s out, emulating the example of his chaebol peers including SK Group chairman Chey Tae-won and CJ Group chairman Lee Jay-hyun, who today are active leaders of their conglomerates in spite of having spent years in jail.
Under pressure, Lee gave up on extending his three-year term on the Samsung (KS:005930) board, which is set to expire on Saturday. Although he’s keeping his title as vice chairman, it will be the board that drives overall management decisions, according to people familiar with the matter. Board Chairman Lee Sang-hoon and Samsung President Chung Hyun-ho -- who’s managing Samsung’s business task force and is known to be an ally of Lee’s -- are likely to take the lead in management in the absence of the heir.
