[Invest&Law] The 'Judicial Shackles' Binding K-Companies

Lee Jae-yong Needs to Broaden Management Scope
Trial Affects Every Business Trip Schedule
TSMC Has Had Zero Raids in 37 Years
Legal Experts: "Owner Absence Shakes Company
Flexible Investigation, Avoid Forcing Attendance"

As the era of artificial intelligence (AI) dawns and semiconductor competition among global companies intensifies, corporate 'judicial risks' are gaining renewed attention. In particular, the fact that Taiwan's TSMC has never been subjected to a search and seizure in its 37-year history has drawn comparisons with Samsung Electronics, which is challenging the foundry market.

According to legal and business insiders on the 12th, Samsung Electronics Chairman Lee Jae-yong reportedly considered advancing his recent U.S. business trip schedule. This was because he judged that he needed to act quickly to seek new opportunities amid the company's loss of competitiveness and difficulties in the semiconductor market.

Samsung Electronics, Seocho-gu, Seoul. [Photo by Yonhap News]

However, conditions were not favorable for expanding his activities. On the 27th of last month, the Seoul High Court was scheduled to hold the first trial for the case involving allegations of 'unfair merger and accounting fraud.' Although it was a preparatory hearing and Chairman Lee was not obligated to attend, it was burdensome for a defendant facing trial to leave the country before the hearing. The following day, on the 28th, he had a meeting scheduled with Mohamed bin Zayed Al Nahyan, President of the United Arab Emirates (UAE). Chairman Lee’s current situation, having to plan his trip around court schedules, effectively means he has not completely escaped 'judicial risks.' Despite being acquitted of all charges in the first trial, the judicial risks that have persisted for seven years have not been fully resolved.

In contrast, the world’s number one foundry, TSMC, is the complete opposite of Samsung Electronics. According to officials met locally in Taiwan, TSMC has never been subjected to a search and seizure by local prosecutors in its 37-year history. Maurice Chang, the founder of TSMC, has also never been the subject of an investigation. An insider familiar with the local situation said, "While we cannot be certain that TSMC’s management has been entirely clean so far, the fact that Taiwan’s prosecutors, known for their strict anti-corruption investigations, have never conducted an investigation suggests that TSMC has avoided illegal activities at the corporate level and thus prevented judicial risks."

TSMC Taiwan Global R&D Center. [Image source=Reuters Yonhap News]

In the legal community, voices are emerging that changes are needed in how Korean prosecutors and courts handle corporate-related cases. Many argue that unless the crime is heinous, such as murder or other crimes against humanity, there should be flexibility in allowing owners of companies to undergo investigations and trials, considering their unique positions. If an owner is detained, the person who can ultimately make decisions on the company’s pressing issues is absent, making it impossible to make critical management decisions during important times. The business community warns that this lack of decision-making can significantly affect a company’s fate. There are also opinions that, unless the trial schedule causes major disruptions, attendance should not be forced so that business leaders can focus on corporate management while attending trials.

Chairman Lee is currently crossing the continent from New York on the U.S. East Coast to Silicon Valley on the West Coast, managing a tight schedule of about 30 meetings. It is expected that he will discuss cooperation plans with influential figures such as Jensen Huang, CEO of Nvidia, and Cristiano Amon, CEO of Qualcomm. For Chairman Lee, the next preparatory hearing for the second trial of the 'unfair merger and accounting fraud' case is scheduled for the 22nd of next month. He appears to be in a situation where he must meet as many key figures as possible in the U.S. before returning.