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SEOUL – Lee Jae-yong, the vice-chairman, heir and de facto head of national flagship and global mega-brand Samsung Electronics, will be released from prison Friday after serving eight months of a two-and-a-half-year sentence for bribery.
Lee, also known as JY, was sentenced in January in a retrial of a case that also impacted former President Park Geun-hye, who is serving a 33-year compound sentence for corruption and abuse of power.
The parole decision was taken by the Justice Ministry as part of a program that takes effect every year around August 15, the anniversary of liberation from Japanese colonial rule in 1945. Altogether, 810 people are being paroled.
The controversial tycoon was paroled “in consideration of the national economic situation and the global economic environment” amid the Covid-19 pandemic, the Ministry of Justice said in a statement released to foreign reporters. The ministry “comprehensively considered” various factors, including “society’s emotions,” the release stated.
The decision was made public on Monday night. Lee was expected to walk on Friday.
As he is being paroled rather than pardoned, Lee is not permitted to engage in corporate activities for five years. However, few believe that will keep him out of Samsung’s C-suite.
Yet while Lee is Samsung heir by birth, his business nous is far from clear. During his jail terms, the company continued to operate highly effectively under professional managers, who have also taken major investment decisions.
While the decision on Lee’s parole was released on Monday evening, on Tuesday Samsung stock fell 1.6%.
The news of his release was welcomed by the business community, which favors corporate stability and managerial decision-making. But it has drawn criticism from civic groups, given that conglomerate leaders have a long history of abusing power and evading justice in South Korea.
Out of jail …
Lee and a cabal of executives were found guilty of engaging in fraudulent practices to enable the merger to two Samsung affiliates – Samsung C&T and Cheil Industries – in 2015.
After the removal of his father, Chairman Lee Keun-hee, from management due to a stroke in 2014, that merger helped consolidate the younger Lee’s control over the huge and complex conglomerate. It was vocally opposed by some shareholders.
The case not only implicated the National Pension Service, which held stakes in the related companies, but also sucked in then-president Park. Park, in 2016, trapped in a massive influence-peddling scandal of which the Samsung affair was only one element, was impeached, removed from office and imprisoned in 2017 after the Moon Jae-in government took power.
Lee was found guilty of corruption in August 2017 and sentenced to five years. In February 2018, an appeals court reduced his sentence to two and a half years and released him. In January 2021, he was retried and re-jailed for two and a half years – a case which he said he would not appeal.
A parade of South Korean conglomerate leaders has been released early from prison sentences for corporate crimes, or otherwise pardoned or paroled, with judges – and even presidents – citing their importance to the national economy as the reason. South Korean society has been split on the JY Lee issue.
Some consider it good riddance to a corrupt business leader who wanted to maintain control of Samsung at all costs. Others believe Lee merely acted in a way that is customary for business leaders and corporate heirs in a highly complex political-judicial landscape.
“Outside of Korea people might see this as rather shocking – that the head of Samsung, one of the world’s best-known brands – serves a jail sentence and it is not even suggested that, as a convicted felon, he will be replaced,” said Mike Breen, Seoul-based author of The New Koreans. “That is because he is not really seen as a criminal in the eyes of Koreans.”
South Korea was hugely successful at industrializing in the 1960s, ’70s and ’80s. However, the vehicle which drove that success – a nexus of politics, bureaucracy and private business – was a hive of moral hazard.
Despite widespread changes in South Korea, practices from those days linger, the rule of law is often subject to the rule of politics and the family-run conglomerates of yore – the chaebol – remain deeply entrenched in the economy.
As a result, “everybody knows that the legal and political landscape that business has to negotiate is so complex that the head of every large conglomerate, or most of them, technically, have criminal records,” Breen said.
Another element is public opinion – including the opinion of the business community.
Back to the C-suite?
The pardoning of the billionaire is hardly likely to generate street protests in any significant numbers, and big business lobby groups were all in favor, citing positives for the national economy.
“The decision reflects the people’s demand for economic recovery and their call for Samsung to play a role in leading the recovery,” the Federation of Korean Industries told local media, while the Korean Chamber of Commerce and Industry said the decision would accelerate decision making at Samsung.
Samsung, South Korea’s most valuable company, is central to the national economy.
It is the world’s leading maker of memory chips, the number two player in non-memory, and as of last year, the top provider of smartphones. It is also holding strong positions in displays and electronic appliances. Not only does Samsung’s business portfolio look bulletproof, amid the work-at-home, play-at-home pandemic environment, it saw sales surge.
Indeed, some experts say that Samsung’s biggest managerial problem is how and where to invest its massive profits.
Yet critics are far from convinced that Lee, the third generation of his family to helm Samsung, possesses significant business nous.
His career record is uninspiring. Lee’s first job at Samsung resulted in the e-commerce company he helmed going bankrupt. Subsequently, he took on the role of “relationship manager” – a specially created position – only to see Samsung embroiled in a billion-dollar lawsuit against client and competitor Apple.
And both his late father and Lee himself have been found guilty of malfeasances in cases designed to pass on the junior Lee’s control of the group. South Korea has some of the world’s highest inheritance taxes, which has compelled some chaebol heads to engage in dubious inheritance schemes.
It is unclear how far Samsung’s recent successes in semiconductors are due to Lee in person. Experts suggest the company’s long legacy and core of professional managers have driven its success.
“Lee Jae-young is not a proven business leader at all – he is not Steve Jobs,” said Park Sang-in, an expert on public policy who studies chaebol at the elite Seoul National University. “The expectation that he will make a big difference in the semiconductor world has no grounds at all.”
Certainly, Samsung did not suffer during his prior jailing.
“We have experienced chaebol leaders going to jail, and while in jail, the performance of the group and economy as a whole has increased,” Park said.
Lee is de jure not permitted to return to an executive role at Samsung. Under South Korea’s Act on the Aggravated Punishment of Specific Economic Crimes, those convicted of corporate crimes involving amounts more than 500 million won (US$436,000) are disallowed to work for related corporates for five years after release from jail.
“If a person is pardoned, he can return to work immediately, but JY was paroled, not pardoned,” said Park. “That is the difference.”
Still, Park does not expect that to keep Lee away from Samsung’s managerial suite.
He cited the example of Kim Seung-youn, chairman of Hanwhwa Group, who has suffered a multiplicity of legal entanglements, including a conviction for embezzlement. He subsequently returned to his group in February as an “unregistered executive.” Kim’s earlier evasions of jail time had been characterized as a “prison break” by one South Korean media.
And even prior to Kim’s announced return to Hanwhwa’s management, Park believes he was closely involved.
“I believe he managed the company behind the scenes,” Park said. “If the government investigated whether he was engaged, he would probably be found guilty.”
Lee could be back to work as early as next week.
“If Lee is paroled now, he can ask for some permission to go back to work as vice-chairman of Samsung and the Ministry of Justice can basically give that kind of permission,” Park said.” I think it will be done some time next week.”