Leader's arrest calls for inevitable remedial steps
Lee Jae-yong, the de facto leader of Samsung Group, was arrested Friday on charges of bribing President Park Geun-hye and her friend Choi Soon-sil. Lee's arrest came three weeks after the first such attempt by the special prosecution team was foiled. Lee is the first Samsung leader to have landed behind bars.
The real target of the special probe is President Park and Lee's arrest is seen as a major boost in the effort to prove Park's guilt, certainly making more compelling a guilty ruling in her impeachment by the Constitutional Court.
However, when the heft Samsung has for the national economy and globally is considered, what becomes of Samsung as a result of Lee's arrest can't be put on the backburner.
First, how will the arrest impact corporate governance headed by Lee and his family? It is not likely that his management control of the group will be immediately challenged. With the inter-subsidiary merger of Cheil and Samsung C&T, Lee has had the group under lock and key.
An attempt to dislodge him from the top position, perhaps by key stakeholders, is plausible but equally unlikely, considering Samsung Electronics, the flagship of the group, is the golden goose that generates billions of dollars in quarterly profits. Only fools would want to stress it, not to mention kill it.
U.S. hedge fund Elliott tried to lead a minority rebellion against the Cheil-C&T merger, in which Lee is suspected of having enlisted Park's help in gaining a nod from the large stakeholder, the National Pension Service, and nearly succeeded. Noteworthy is the fact that Lee is in jail not for conviction but as the court recognized there were reasonable grounds that the charges are true.
One possible scenario is that some shareholders could gather forces to raise an issue over Lee's qualifications as leader and put pressure on Samsung to increase dividends or demand a governance overhaul to ease the centralization of power. A real test for Lee is how to prove he is up to the job and rally his business empire around him.
On a larger scale, Lee's arrest recaptures the power-chaebol collusion, the ailment that has sickened Korea Inc. for decades. The collusion dates back to the era of "development dictatorship" led by the army general-turned-president, Park Chung-hee, the father of the incumbent, who diverted scarce national resources to a few private companies that have grown to be chaebol like Samsung, Hyundai and LG.
It looks as farcical as it is sad for Samsung, the world's leading smartphone maker, to claim that it buckled under government pressure and "donated" the money so it was not a bribe. If their pleas were true, it means that chaebol have been stuck in the same mentality as they were 30 or 40 years ago when they were small. However bitter the remedial pills may be, Samsung's case shows it can't be delayed any longer to force chaebol to operate more transparently and responsibly. Even if it costs a lot, it is the price that should be paid to unfetter the chaebol and help them grow bigger and stronger. In that, everybody _ not just the chaebol, the government and, most importantly, the people _ has a stake.