Samsung Group in Turmoil as Chief Indicted

GettyImages-83678087-compressorSamsung Group shut down its corporate nerve center this morning after acting leader Jay Y. Lee was charged with bribery and embezzlement, extending a troubled period for the South Korean conglomerate following a recall of its fire-prone Galaxy Note 7 smartphone.

The scandal has negative implications for the country’s powerful family-run business empires, locally known as “chaebol”, credited with driving economic growth since the Korean war but also criticized for their opaque structures and authoritarian ethos.

Lee was arrested earlier this month for allegedly exchanging bribes for government favors amid explosive accusations involving impeached president Park Geun-hye. He is the son of Samsung chairman Lee Kun-hee, who was incapacitated by a heart attack in 2014.

“Any chaebol reform resulting from the scandals could create companies with corporate governance practices more in step with their Western peers.

Shortly after a South Korean special prosecutor announced the charges against Lee and four other Samsung executives, the company said it was closing its corporate strategy office in Seoul. Instead, affiliate companies such as Samsung Electronics, Samsung Heavy Industries and Samsung C&T would be managed by their respective boards and CEOs, the company said.

The distraction could be a gift for competitors across various industries, ranging from ship-building to insurance, including smartphone rival Apple. Samsung Electronics lost its crown as the world’s biggest smartphone maker in the fourth quarter of 2016 to Apple after the Galaxy Note 7 debacle in September and October weighed on sales.

To be sure, any chaebol reform resulting from the scandals could create companies with corporate governance practices more in step with their Western peers.

Several leading candidates to replace Park, should her impeachment be upheld by a court in the coming weeks, have pushed to weaken the influence of chaebols via tighter anti-monopoly and fair trading laws.

“A new government under a left-of-center president would likely accelerate efforts to achieve that goal,” Scott Seaman, a senior Asia analyst at Eurasia, said in a client note.

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