Lee Jae-yong, chairman of Samsung Electronics, who was indicted for the unfair merger of Samsung C&T and Cheil Industries and suspicions of illegal succession, was acquitted in the appeals court on the 3rd. Attention is focusing on whether the control tower of Samsung Electronics, which has poured most of its human resources into mitigating Lee's legal risks, can regain its proper function.
The Seoul High Court's Criminal Division 13, presided over by Judge Baek Gang-jin, held a public sentencing hearing on the afternoon of the same day regarding Lee's case for violations of the Capital Markets Act, including unfair trading and market manipulation, and stated, "We will uphold the first trial's not guilty ruling." This conclusion is the same as the first trial.
From Samsung Electronics' standpoint, there is a relieved atmosphere as concerns over a prolonged management vacuum have been alleviated. Since being indicted by the prosecution in September 2020, Lee has been unable to focus on significant management activities. He attended a total of 102 hearings (96 in the first trial and 6 in the appeals) regarding the unfair merger of Samsung C&T and Cheil Industries and suspicions of illegal succession. The prevailing interpretation is that the reason Samsung Electronics has not addressed Lee's return as a registered director is due to this legal risk.
◇ Lee Jae-yong hindered for 4 years and 5 months… "Such cases are rarely found overseas"
Samsung Electronics is facing sluggish market conditions in its semiconductor business, following an 'earnings shock' in the fourth quarter of last year and poor conditions in the first half of this year. Compounding this, the external environment has become unprecedentedly complex with the inauguration of the Trump administration in the U.S. and the emergence of China's deep-tech companies. In the booming era of artificial intelligence (AI), Samsung is also lagging behind competitors in its high-bandwidth memory (HBM) business, and its foundry business is failing to overcome its disadvantage compared to TSMC.
As core affiliates led by Samsung Electronics are suffering from poor performance, expectations are rising that Lee's acquittal in the second trial may help regain momentum for overcoming the crisis. Even if the prosecution appeals, the probability of the appeals decision being overturned in the legal review, or third trial, is extremely low.
Jo Myung-hyun, a professor at Korea University's Department of Business Administration, noted regarding Lee's legal risk that, "Such court cases occur almost weekly overseas unless there are clear criminal offenses involved," and added, "It was inevitable that normal management activities were difficult while the head of the group was directly visiting the court every week without a lawyer representation."
Another business community source said, "It is hard to believe that a major conglomerate head like Samsung has suffered from legal risks for 4 years and 5 months without affecting management conditions," adding, "The psychological pressure, along with international business trips, has likely all served as detrimental factors." On the same day, attorney Kim Yu-jin from Kim & Chang also expressed, during a meeting with reporters, "A significant amount of time has passed during the investigation and trial process of this case," and added, "I hope that this ruling will allow the defendant to focus on their original work going forward."
◇ In the age of AI transformation… Attention on Samsung's control tower reconstruction
There are also prospects that strengthening responsibility management through Lee's return as a registered director and reconstructing the group's control tower could gain momentum. Lee Chan-hee, chairperson of the Samsung Compliance Committee, which monitors legal management at Samsung Group, has also emphasized the necessity of Lee's return as a registered director and the reconstruction of the control tower.
The revival of a control tower similar to the former Future Strategy Office is also a point of interest. The Future Strategy Office was identified as the channel for the National Assembly's influence-peddling scandal and was disbanded in 2017. Just as Lee decided to disband the Future Strategy Office, reviving it would be difficult without the chairman's decision. There has been ongoing argument in the business community that a control tower is necessary for large corporations like Samsung to respond swiftly to key issues and to establish mid-and long-term business strategies, but Lee's legal risks have hindered that.
Meanwhile, Lee Jae-yong stepped up to tackle the crisis by becoming a registered executive through an extraordinary shareholders' meeting when the 'Galaxy Note 7' recall crisis erupted in 2016, but he completed his term in October 2019 without being reappointed after Samsung became embroiled in the National Assembly's influence-peddling scandal. Currently, among the heads of the four large conglomerates, only Chairman Lee Jae-yong remains a non-registered executive.