Samsung Vice Chairman facing key tests following pardon

Friday August 12, 2022

After being granted a special presidential pardon, Samsung Electronics Vice Chairman Lee Jae-yong now faces critical tests of weathering unfavorable market conditions and spearheading anticipated deal-making.  

While civic groups are criticizing the decision by President Yoon Suk-yeol, citing unfair leniency, experts expect the shift in Lee’s status will help boost his legitimacy in making key management decisions.

Lee vowed to focus on investment, job creation and corporate social responsibility.  

“I will do my best to fulfill my responsibility as a businessman. [I] will work to contribute to the economy through steady investment and job creation for youth,” he said in a statement released following the announcement on his pardon on Friday.

“I will make more efforts to share with society, together achieving growth,” he said.  

Lee was sentenced to a two-and-a-half-year prison term for bribing former President Park Geun-hye. He was released on parole last August.

The special pardon means Lee will no longer have to attend regular hearing sessions or face any restrictions that limit the scope of his business activities, such as being unable to travel overseas for business trips or sit on the board of the electronics maker.  

“Lee had to be present at the court every week and report to the Justice Ministry if he wanted to take an overseas business trip,” said Mike Cho, a business professor at Korea University.  

In Korea, the law stipulates that people convicted of embezzling more than 500 million won ($384,059) are barred from retaining a board seat at a company connected with embezzlement for five years. Vice Chairman Lee was unable to stand for a second term as a registered board member after his first term ended in 2019 due to his criminal record — but now he is free to take the position once again.  

Lee is likely to be given the chairmanship title, following the death of his father, Lee Kun-hee, in 2020.  

“The sons of the founding family at other conglomerates like LG and Hyundai Motor have all been promoted to chairman,” said an executive at Samsung Electronics who spoke on the condition of anonymity.  

“But Lee alone remains as vice chairman, so it is kind of a natural process, although it is still unclear when it will happen,” he said. The younger Lee was appointed as vice chairman in 2012 and attained a board seat in 2016.  

The pardon is also likely to have symbolic implications.  

“When you have to sit at a negotiation table while being technically convicted, it is an uncomfortable situation for both parties.” Cho noted, “When pardoned, the vice chairman could be more involved in long-term decisions like investments and acquisitions in a consistent manner.”

Chief executives of the tech giant have said that the company is committed to making an acquisition of meaningful size by 2023. Samsung Electronics Vice Chairman Han Jong-hee said in June that a review is underway, although neither the timeframe nor the target were identified.

At the same time, prospects for chips and the electronic devices sector are dimming due to slowing demand and rising costs in line with a warning during a Samsung Electronics conference call last month.  

Its shares closed at 60,200 won on Friday, up 0.5 percent from the previous day.  

The latest price is down 23.4 percent compared to the beginning of the year, as the stock recently took a negative cue from worse-than-expected earnings reports at big tech players like Nvidia.  

Others predict that the initial focus will be on improving corporate governance to eventually build a holdings unit or a holding-company-like structure. 

“Lee Jae-yong will likely return to the board at Samsung Electronics and major affiliates,” said Lee Hyun-oh, a senior analyst at Sustinvest, a financial advisory firm on corporate governance.  

“And then he will act on reorganizing corporate structure to turn [Samsung] into a holdings structure,” Lee said.  

Samsung Electronics hired Daniel Oh, a corporate governance specialist who formerly worked at Morrow Sodali, as its executive vice president in February.  

The tech company reportedly tapped Boston Consulting Group last year to review its corporate governance system.  

Along with Lee, Lotte Chairman Shin Dong-bin received a presidential pardon on Friday. While no major changes are expected, Shin is expected to accelerate the company’s entry into new businesses like chemical and biopharmaceuticals. 

“Now that there are no obstacles, we will become more active in expanding out new businesses and there possibly could be more investments,” said a spokesperson for Lotte Corporation.

“But that doesn’t mean we will suddenly make a huge investment decision because we did announce long-term investment plans early this year, and even if we do make new investments, the amount won’t be significantly bigger than our original plan,” he said.

In a statement released following the announcement regarding Shin’s pardon, Lotte Corporation cited bio, hydrogen energy and battery materials as future focuses.  

Shin was sentenced to a two-and-a-half year prison term suspended for four yearsfor bribing impeached former president Park Geun-hye and was serving a four-year suspended sentence.  

The pardon will rid company of future awkward conversations regarding the Shin’s status at the company.  

“There were several occasions where we had to give details about his suspension when meeting with influential figures abroad,” said a source at Lotte Corporation.  

“Shin served as the head of Korea Ski Association, but he was unable to take the position after the verdict. He will be more involved in various fields, going forward,” the source said.  

In May, Lotte companies announced they will make a combined investment of 37 trillion won over the next five years. But the markets expect that the amount could be revised up, based on the previous practice of business chiefs.  

“Business leaders tend to indirectly express gratitude for the pardons through investment decisions,” said Choi Nam-gon, an analyst at Yuanta Securities.

Other business tycoons have made big investment decisions after being pardoned. Chey Tae-won, SK Group chairman who was jailed for embezzling funds from an SK subsidiary, was pardoned in 2015. Just four days after the decision, Chey announced a 46-trillion-won investment into SK hynix.  

Both Samsung Electronics and Lotte Corporation are expected to be more active in the push to promote Busan for the World Expo 2030. The two are both member companies of a committee tasked with helping the city win the bid. 

While Samsung Electronics will leverage advertising platforms and strong networking at home and abroad, Lotte Shopping will be putting up various advertisements to promote Busan’s bid.

BY PARK EUN-JEE, LEE TAE-HEE [park.eunjee@joongang.co.kr]