Leadership vacuum to weigh heavily on Samsung

By Kim Tae-gyu

The lack of a leader is expected to weigh heavily on Samsung Group at a time when worldwide competition intensifies for the conglomerate’s units like Samsung Electronics, observers said Monday.

After special prosecutors requested an arrest warrant for Samsung Electronics Vice Chairman Lee Jae-yong for his alleged role in an influence-peddling scandal, which has already prompted lawmakers to impeach President Park Geun-hye, Samsung is now in dire straits.

Lee’s father, Chairman Lee Kun-hee, cannot head the nation’s top chaebol because he has been hospitalized since falling into a coma after a heart attack in May 2014.

“If the court issues the arrest warrant this week, Samsung is feared to face an unprecedented leadership vacuum,” said a professor at a Seoul-based university, who asked not to be named.

“Without its captain, do you think such a big vessel like Samsung would sail in the right direction? It is also bad news for the whole economy as Samsung is such a big business group.”

Vice Chairman Lee’s bedridden father and his grandfather, Samsung founder Lee Byung-chul, were never put behind bars although they were indicted several times.

While making the decision, the independent counsel considered its potential negative impact on the economy but it contended that justice should come first.

Vice Chairman Lee is suspected of being involved in Samsung’s provision of undue financial support to Park’s shadowy aide Choi Soon-sil in return for the state pension fund’s backing of a merger between two Samsung subsidiaries last year, which some claim helped pave the way for the group’s father-to-son power transfer.

Special prosecutors argued that Samsung offered billions of won to bribe Choi, but the company stated that it had been forced to cough up the amount, without expecting any special favors in return.

Showing apprehension of the special prosecutors’ move, the Korea Chamber of Commerce and Industry asked them not to arrest Vice Chairman Lee in light of the potential fallout on the already-fragile economy.

The Korea Employers Federation, a business lobby, also said in a press release opposing the independent counsel’s act that there was no hard evidence and Lee would not flee or destroy evidence.

“Our companies are making efforts to deal with the fast-changing world. Investigations of business leaders undermine corporate value and may end up forcing some of them to collapse,” it said.

IBK Securities research head Lee Jong-woo was not worried about Samsung’s performances in the stock market even without Vice Chairman Lee. But he was concerned about the long-term effects if the absence is prolonged.

“What comes first for any company is its underlying fundamentals and those of Samsung could not be better as amply demonstrated by recent performances,” IBK Securities research head Lee Jong-woo said.

“Experience tells us that other issues will not affect stock prices that much. In the long term, however, it is a different story. Samsung may suffer setbacks due to a lack of leadership as executives are so crucial in our chaebol system.”

Samsung chalked up 9.2 trillion won in operating profit in the fourth quarter of last year, the earnings surprise came despite problems following the Galaxy Note 7 debacle.

Repeated fire reports in the large-screen smartphones, which debuted last August, prodded Samsung to make a costly global recall wreaking havoc on the world’s top manufacturer of smartphones and memory chips.

Yet, its well-diversified business portfolio helped the company perform well during the October-December period. In particular, its semiconductor division boosted the bottom line.

Dashin Securities analyst Park Kang-ho agreed on the fundamentals-oriented approach. But he raised worries on issues such as the recent acquisition of Harman International.

Samsung Electronics acquired the U.S.-based producer of auto parts last year for $8 billion but recently a group of shareholders filed a fiduciary duty suit in a court against Harman leaders. They are likely to exercise their right to vote against the deal, which needs shareholders’ approval.