With Lee Jae-yong's Detention... Samsung Likely to Enter Emergency Management Mode

Samsung Electronics Vice Chairman Lee Jae-yong is attending the retrial sentencing hearing of the state affairs manipulation case held at the Seoul High Court in Seocho-gu, Seoul on the 18th. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Changhwan Lee] Samsung Electronics Vice Chairman Lee Jae-yong was sentenced to prison and detained on the 18th in the retrial of the 'National Pension Scandal' case, raising expectations that Samsung Electronics will enter an emergency management system.

On the day, the Seoul High Court Criminal Division 1 (Presiding Judges Jeong Jun-young, Song Young-seung, Kang Sang-wook) sentenced Vice Chairman Lee, who was indicted on charges including bribery, to 2 years and 6 months in prison. Lee, who had been on trial without detention, was arrested in court after a warrant was issued that day.

With Vice Chairman Lee's detention, Samsung has entered a professional management system without the owner. When Lee was first detained in February 2017, Samsung also operated under a professional management system for each affiliate rather than a group owner-centered management system.

This time as well, it is expected that professional managers for each affiliate will run the companies. Samsung Electronics, a core affiliate, is expected to maintain a CEO system of three top executives for some time, centered on Vice Chairman and CEO Kim Ki-nam, along with President Kim Hyun-suk and President Roh Tae-moon. Other affiliates are also expected to be operated centered on their current CEOs.

However, there is also a forecast that the Business Support Task Force led by Samsung Electronics President Jung Hyun-ho, a close aide of Vice Chairman Lee, will serve as a coordinating hub for the entire group, which is unsettled due to the owner’s detention.

The business community is concerned about the negative impact on the national economy, including Samsung, following Vice Chairman Lee's detention. The Federation of Korean Industries issued a statement on the day, saying, "Vice Chairman Lee has played a role in supporting the Korean economy by leading bold investments and job creation amid the COVID-19 economic crisis, and we deeply regret the detention ruling."

The Federation added, "Considering Samsung's share in the Korean economy and its status as a global company, we are concerned that the contraction of Samsung's management activities due to this ruling may have adverse effects beyond the individual company, impacting the entire Korean economy."

The Korea Employers Federation also emphasized, "Economic uncertainty is greater than ever due to recent economic shocks caused by COVID-19 and accelerated economic policies focused on protecting domestic industries worldwide," adding, "The management vacuum of a global company representing our country will inevitably cause delays in major business decisions and investments, adversely affecting the economy and industry as a whole."