Samsung's prosperity and crisis: the fallen leader and the rise of the enemy

　　[“ Samsung Group has begun to dismantle the Future Strategy Office. This measure will help each subsidiary make independent decisions based on its own circumstances. We will also be taking a path that has never been taken in the history of Samsung Group.”] Let’s follow the editor of Mobile Phone Portable to learn about the relevant content.

　　[On August 25, the Seoul Central District Court of South Korea issued a first-instance verdict on the bribery case of Samsung 's head Lee Jae-yong, sentencing him to five years in prison.]

　　Facing the judge, Lee Jae-yong couldn't help but shed tears.

　　When the South Korean prosecutors proposed a 12-year prison sentence, Lee Jae-yong, the usually calm head of Samsung, choked up and said, "If I cannot resolve the current distrust and misunderstanding, then there is no point for me to be the head of Samsung."

　　On August 25, the Seoul Central District Court of South Korea made a first-instance judgment on the bribery case of Samsung head Lee Jae-yong. The court sentenced Lee Jae-yong to five years in prison. Except for not accepting Lee Jae-yong's claim that he sought help in his meeting with Park Geun-hye and adjusted the scale of the bribery, the court basically confirmed all the charges of the prosecution: bribery, embezzlement, transferring assets overseas, concealing criminal proceeds, and perjury to Congress.

　　At the same time, public opinion on the Samsung Group is also increasing. As a large technology company in South Korea and even the world, where Samsung will go in the "post-Lee Jae-yong era" has also become the focus of many people's attention.

　　The "3.5 Rule" of Korean Chaebols

　　Kim Sung-mo (transliteration), a South Korean legal expert, told Yicai Global that among the five charges against Lee Jae-yong, bribery is the most important component. Whether the bribery crime is established directly determines whether the other charges are established. "After all, whether it is transferring assets or concealing income, it must first be supported by the fact of bribery."

　　"In this case, the most direct points of contention are: whether Lee Jae-yong provided bribes for the purpose of profit, and whether the bribes given to Choi Soon-sil reached Park Geun-hye. In the first-instance judgment document, there are 13 pages specifically discussing this part; and the court recognized all these two charges of the prosecution and specifically noted in the judgment document: Judging from previous testimony and evidence, there is no doubt that there is a solid "economic community" between Park Geun-hye and Choi Soon-sil." said Kim Sung-mo.

　　Kim Sung-mo also told reporters that the first instance court determined that the purpose of the ongoing equity structure reform within the Samsung Group was to "help Lee Jae-yong gain control of the group headed by Samsung Electronics and its subsidiaries."

　　Therefore, in Kim Sung-mo's view, this verdict basically confirmed the fact that Lee Jae-yong had bribed, and determined the nature of the case as "immoral collusion between political power and economic power." "It can be said that for the prosecution, although there are some regrets in some details, overall, the first instance trial was a victory for the prosecution."

　　However, in the view of Zhu Zhenheng (transliteration), another Korean financial figure who has long been engaged in chaebol research, "the essence of this trial still reflects the collusion between Korean chaebols and judicial power."

　　Previously, when Joo Jin-hyung was the representative of a Korean securities company, he opposed the merger between Samsung C&T and Cheil Industries, which was called "the most important link for Lee Jae-yong to inherit the Samsung empire."

　　Zhu Zhenheng believes that the merger "seeks private gain by underestimating the value of Samsung C&T and deliberately harming the interests of other shareholders."

　　"In the process of Lee Jae-yong's succession to power, the final vote in favor of the National Pension Fund of Korea (reporter's note: national pension fund) in the merger of Samsung C&T and Cheil Industries can be said to have played a decisive role; and regarding the prosecution's claim that Lee Jae-yong had bribed the government in exchange for support for succession, the first instance court made the judgment that 'although Lee Jae-yong bribed Park Geun-hye and Choi Soon-sil's forces, the purpose cannot be determined to be personal gain', which greatly affected the verdict." Zhu Zhenheng pointed out.

　　Zhu Zhenheng believes: "As it is well known that the actual head of Samsung Group is the Lee Kun-hee family, it can be said that the above judgment made by the court goes against common sense and is uniquely 'creative'. On the one hand, the court mentioned 'improper collusion' in the judgment document, and this judgment also indirectly shows the improper collusion between economic power and judicial power."

　　In addition, Joo Jin-hyung also mentioned the "3.5 Rule" which is widely circulated in South Korea, to express the dissatisfaction of the South Korean people with the chaebols' repeated evasion of punishment: that is, under normal circumstances, bribery cases involving large chaebols will generally result in a five-year prison sentence in the first instance, and then the sentence will be reduced to less than three years in the second and third instances for various reasons, and finally end with "probation."

　　It is worth noting that after the first-instance judgment was released, Samsung and the prosecution almost simultaneously expressed their dissatisfaction with the judgment and filed appeals one after another.

　　After the trial, Samsung's lawyers sent a message to reporters including the First Financial Daily, saying, "We firmly believe that all the defendants are innocent and therefore cannot accept the court's verdict." They also said that they would appeal immediately and fully prepare for the second-instance trial. The prosecution also stated through formal materials that it believed the court's verdict was too light and "not in line with the law and convention," and therefore appealed to a higher court.

　　According to the First Financial reporter, the chaebol with the longest sentence among South Korea's large chaebols is Kim Woo-joong, the former chairman of Daewoo Group. The prosecution sentenced him to 15 years in prison, but the court finally sentenced him to 10 years in prison. This also provided an important reason for the decline of Daewoo Group. The former head of Samsung, Lee Kun-hee, was sentenced to 7 years in prison by the prosecution, but was eventually sentenced to 3 years in prison and 5 years of probation.

　　But at the end of 2009, the then-President Lee Myung-bak announced a special pardon for Lee Kun-hee based on "national interests", saying that as a member of the International Olympic Committee, he could help Pyeongchang bid for the Winter Olympics; this was also the first time in South Korean history that a single person was pardoned.

　　The two sides of Lee Jae-yong

　　"There is a rumor inside Samsung: Lee Jae-yong has many Samsung Galaxy flagship smartphones in the trunk of his car, and he uses them to promote his own smartphones when he meets important people," a well-informed Korean source told Yicai Global. "But it was just a rumor until that incident happened."

　　It was during a family event. When a reporter wanted to interview Lee Jae-yong, Lee Jae-yong noticed something and joked, "If you have a Samsung phone, I will be happy to be interviewed." The reporter was holding an LG smartphone. Before the reporter could reply, Lee Jae-yong walked to the private car, took out a Samsung flagship phone from the box and gave it to the reporter. Since then, his reputation as the "Galaxy Ambassador" has spread like wildfire.

　　In fact, apart from being the "Galaxy Ambassador", Lee Jae-yong left a more profound impression on the Korean people, that is, he was "born with a silver spoon in his mouth."

　　Lee Jae-yong was born in 1968. His father is Lee Kun-hee, South Korea's richest man and head of Samsung Group, and his mother is Hong Ra-hee, the daughter of the chairman of South Korea's large media company JoongAng Ilbo. As the only son in the family, Lee Jae-yong was trained as a successor early on. After graduating from Seoul National University, a well-known Korean university, Lee Jae-yong was sent to study in Japan and the United States.

　　In 2001, Lee Jae-yong officially returned to Samsung and began to hold some important positions in the group. In the following ten years, he rarely appeared in front of the media and moved around in many positions. Some people commented that unlike his father Lee Kun-hee's "emperor style", Lee Jae-yong has a gentle personality, has absorbed knowledge from the West, and has a "bookish" air. The "approachable" attitude that Lee Jae-yong showed in college and after work has also become one of Lee Jae-yong's most important labels.

　　However, an accident brought Lee Jae-yong into the public eye ahead of time. In May 2014, 72-year-old Lee Kun-hee was hospitalized due to a sudden myocardial infarction and has been in a coma ever since.

　　"The biggest feature of South Korea's chaebol system is that it has a strong spiritual leader. Just like the international group (one of the top ten chaebols in South Korea in the 1970s), the collapse of the spiritual leader is likely to become the starting point for the collapse of a group. Therefore, the transfer of power in the group is also the most sensitive part of the entire chaebol operation process." Li Guoxian, a professor at the College of Political Science and Economics at Korea University, who has long studied the Korean economic system, explained.

　　Lee Jae-yong's "low-key life" has brought him a lot of reputation: for example, the media once photographed Lee Jae-yong going out alone without an entourage to attend a friend's wedding, and even witnessed him taking an economy class flight alone; and Lee Jae-yong's college classmate also testified in an interview with the media: "I once cooked instant noodles with Lee Jae-yong at home. At that time, apart from feeling that Lee Jae-yong should have a good family background, there was nothing unusual; it was a long time later that I knew that Lee Jae-yong was the successor of Samsung."

　　However, as time goes by, Samsung under Lee Jae-yong's control is facing multiple crises: on the one hand, since 2014, Samsung has faced declining profit margins for several quarters and fierce pursuit from competitors; on the other hand, taking the Galaxy Note 7 explosion incident as an opportunity, Samsung Electronics is also facing a crisis of trust.

　　Under pressure and desire, Lee Jae-yong's "exposure" in public has gradually increased, and negative news and comments about Lee Jae-yong have also gradually increased. Previously, Korean media had revealed that Lee Jae-yong's son passed the entrance examination of Yongxun International Middle School as a "social care object" on the grounds that he was a child from a single-parent family in January this year; but after this fact caused controversy, he eventually chose to drop out of school and issued an apology the next day.

　　The "inheritance rights incident" caused an uproar. According to the statement of Kim Yong-cheol, the former legal director of Samsung, in "Samsung Insider: Uncovering the Truth of Samsung's Number One", Samsung started the "management rights inheritance plan" in 1994 to assist Lee Jae-yong in taking over the Samsung Group. According to local laws, South Korea will charge high inheritance taxes for heirs of high assets. Under the careful design of the plan, Lee Jae-yong can avoid paying up to 50% inheritance tax and pay the least tax to control the entire Samsung empire.

　　Outside analysts believe that his father's sudden death forced Lee Jae-yong to hastily complete the "grand plan" of succession, and ultimately he not only failed to break away from the ills of the chaebol, but instead chose to participate in the improper transactions between "chaebol and political power."

　　Who runs Samsung?

　　For Mr. Kim, an ordinary employee working at a subsidiary of Samsung Group, an email received at the end of February this year made him feel that "things have changed."

　　On this day, Samsung officially announced to its employees through a company email: In order to fulfill the promise made at the congressional hearing, it will decide to dissolve the Future Strategy Office within the Samsung Group in the near future.

　　"Although I had heard about Lee Jae-yong and Samsung Group's alleged involvement in the 'best friend' scandal on TV before, it was not until I saw this email that I realized that there really had to be big changes and it wasn't just talk," Mr. Kim recalled.

　　For many Samsung employees, the dissolution of the Future Strategy Office means that everything from the executives' original working hours of 6:30 a.m. to the decision-making methods and personnel transfers within the Samsung Group may change.

　　Public information shows that the predecessor of Samsung Group's Future Strategy Office was the "Secretary's Office" established by Samsung Group founder Lee Byung-chul in 1959. At the beginning, the department had only more than 20 people, mainly helping the chairman to handle daily affairs.

　　Professor Li Guoxian told the reporter of China Business Network: "In fact, one of the most typical characteristics of the first generation of Korean chaebols is that the founder's family or the head of the company has absolute decision-making power over the company and relies on the head of the company's 'inspiration' to run the company. Samsung is a diversified company with subsidiaries all over the world. Therefore, Lee Byung-chul believes that a strong staff organization is needed as an internal coordinator to collect information and make plans and adjustments. In this context, the function of the secretariat began to be strengthened."

　　Under this influence, Lee Byung-chul began to hand over all daily affairs to his subordinates and only made strategic decisions himself. This concept was accepted by Lee Kun-hee and further developed. By the 1980s, the Samsung Secretariat had been called "one of the central agencies operating the Korean economy" and became one of the important ways for Lee Kun-hee to promote his "new business strategy."

　　Since then, the secretariat has undergone several organizational changes and was renamed the "Future Strategy Office" in 2010. Although this agency does not belong to any subsidiary of the Samsung Group, this system, which Samsung employees simply refer to as "the office holds power and the subsidiaries hold finances," continues to this day. The design plans, resource allocation, and business adjustments of Samsung's subsidiaries are all the responsibility of the "Future Strategy Office," forming a top-down, authoritarian system that guides people from top to bottom.

　　"It can be said that Samsung's Future Strategy Room is the 'brain' of the Samsung Group and even every 'Samsung person', and it has made great contributions to enabling the leader to concentrate on making 'big decisions'," said Lee Kuk-hyun.

　　The dissolution of the Future Strategy Office means that Samsung is accelerating the "establishment of fiefdoms" and delegating power to various subsidiaries to achieve the goal of smooth operations.

　　Previously, an unnamed Samsung Group executive told the First Financial reporter: "The reason behind Samsung Group's dismantling of the Future Strategy Office has a lot to do with Lee Jae-yong's belief that 'promises should be fulfilled as soon as possible.' I believe this measure will help each subsidiary make independent decisions based on its own circumstances, and we will also take a path that Samsung Group has never taken in its history."

　　Mr. Kim, who works at Samsung, also has similar feelings: "Although I am not at a level that allows me to have direct contact with Lee Jae-yong, I can see that many decisions of Samsung Group are gradually shifting from the group to the subsidiaries making decisions based on their own situations."

　　South Korean political analyst Cho Sang-hee believes that Samsung will gradually form a system in which daily operations are carried out by the heads of major subsidiaries and businesses, while Lee Jae-yong will coordinate and make decisions on major projects in prison.

　　"In fact, even after Lee Jae-yong was arrested in February this year, major events such as additional investment were still reported to and decided by Lee Jae-yong personally; and among the major chaebols in South Korea, this kind of 'prison management' is not uncommon," said Zhao Shangxi.

　　Zhao Shangxi told the reporter of China Business Network: "Especially when Samsung announced the closure of the Future Strategy Office, if Samsung still sets up an independent decision-making body like other chaebols, it is very likely to attract criticism from the public that it is "reviving the Future Strategy Office", which is obviously not conducive to the upcoming trial; therefore, Samsung will choose to strengthen Lee Jae-yong's "prison management" while trying to delegate power to major subsidiaries according to their own conditions and expand their management autonomy."

　　The aforementioned Samsung executive admitted: "Due to the impact of Lee Jae-yong's arrest, although the company is still operating normally and work is proceeding in an orderly manner, it is undeniable that strategic decisions such as personnel recruitment and corporate mergers and acquisitions have been affected to a certain extent." He also said, "Especially in recent years, large giants such as Apple and Google (Weibo) have been making frequent moves to expand their ecosystem by continuously expanding their business scope; and even if Lee Jae-yong makes decisions in prison, in the absence of a rectified decision-making system, the limitations are still great compared to normal situations."

　　The trial of the "old chaebol"

　　"I think the negative impact of Lee Jae-yong's sentencing on Samsung is even less than that of Note7," Liu Buchen, an observer of the home appliance industry, told the First Financial reporter. He believes that Samsung is a family business based on a modern corporate management mechanism, and the operation of the enterprise depends more on the mechanism rather than personal influence.

　　Beyond the company level, Professor Lee Guk-hyun is concerned about the negative impact of Samsung's Lee Jae-yong case on the macro-economy from a long-term perspective. "Considering the reality that South Korea's small and medium-sized enterprises mainly rely on joining the industrial chain of large chaebols to survive, and Samsung has long become a landmark company in South Korea, Samsung's crisis is not just a corporate problem. We should also consider the invisible and indirect damage it brings to the South Korean economy, such as employment and national credit," said Professor Lee Guk-hyun.

　　As of June 2016, Samsung Group has 59 subsidiaries in South Korea, 15 of which are listed companies; one of them, Samsung Electronics, tops the list of market value of listed companies in South Korea.

　　According to statistics from the Seoul Stock Exchange in South Korea, the total market value of all listed companies of the top ten groups in South Korea is 714.332 trillion won, of which Samsung Group alone has reached 352.156 trillion won, far exceeding the second-ranked Hyundai Motor Group's 104.5941 trillion won, accounting for half of the market.

　　It is not just the KOSPI index. The KOSPI200 stock index options index, which was originally established to share risks and consists of the 200 largest companies in South Korea, has directly evolved into "following the stock price of Samsung Electronics."

　　An industry insider analyzed that of the total market value of KOSPI200 index of 110 trillion won, Samsung Electronics alone accounts for 220 trillion won, nearly 20%; under this situation, the industry insider analyzed with some concern: foreign investors and institutional investors who own nearly 40% of Samsung Electronics' shares will take advantage of their information and investment skills and use the method of buying and selling futures options, which was originally used for "sharing risks", to gain a dominant advantage.

　　"Although these institutions and foreign investors cannot directly manipulate the KOSPI200 futures index, they can achieve their desired goals by manipulating the share price of Samsung Electronics; this also invisibly adds a factor to the instability of the Korean stock market. In this process, it is very likely that retail investors will be the losers in the end," added the above-mentioned industry insider.

　　Zhu Zhenheng said: "In fact, the significance of this trial is that it should not only be a trial against Lee Jae-yong or the Samsung Group, but also a trial against the old chaebol system, a starting point for the 'liquidation of accumulated problems'."

　　"We should be clear: chaebol families only hold a minority of shares, but through complex equity structures and legal loopholes, they achieve pervasive control over companies and hereditary possession of corporate leadership positions. This model seriously violates democratic principles and the spirit of business," said Zhu Zhenheng.

　　Zhu Zhenheng believes that "the direction of Samsung in the post-Lee Jae-yong era should not be determined by Samsung, but by the market." He cited the example that the share price of Samsung Electronics on the Seoul Stock Exchange did not fall sharply due to the previous arrest of Lee Jae-yong. On the contrary, the share price of Samsung Electronics as a whole remained a stable upward trend. The share price per share once exceeded 2.3 million won, setting a new historical high.

　　He quoted the Washington Post's criticism of Samsung: "Samsung's influence is almost comparable to that of the government." He said, "The main promise of the Moon Jae-in government when it took office was to 'clean up the accumulated problems' and reform the country; if the chaebols cannot be reformed and the connection between the chaebols and political power that has lasted for decades cannot be cut off, there will be no reform in South Korea."

    The above is an introduction about Samsung’s crisis in the era of portable mobile phones: the fall of the leader and the rise of enemies on all sides. If you want to know more relevant information, please pay more attention to eeworld. eeworld Electronic Engineering will provide you with more complete, detailed and updated information.