Vice Chairman Lee Jae-yong's Challenge to Overcome: 'Judicial Risk'

Samsung Electronics Vice Chairman Lee Jae-yong arrived on the afternoon of the 25th at the funeral hall of Samsung Seoul Hospital in Gangnam-gu, Seoul, where the funeral of Samsung Group Chairman Lee Kun-hee was held. [Image source=Yonhap News]

[Asia Economy Reporter Ki-min Lee] One of the challenges that Samsung Electronics Vice Chairman Lee Jae-yong, who will lead the new Samsung, must overcome is the judicial risks that have continued for years.

According to the legal community on the 27th, trials related to Vice Chairman Lee, including the retrial of the state affairs manipulation case and the management succession related to the merger of Samsung C&T and Cheil Industries, are currently underway simultaneously.

The most urgent matter is the retrial of the state affairs manipulation case. The Criminal Division 1 of the Seoul High Court held a preparatory hearing for Vice Chairman Lee's retrial on charges including bribery the day before. This trial was held about nine months after the special prosecution team requested a change of the trial panel, claiming "biased trial," following the hearing on January 17.

At this preparatory hearing, the court unusually issued a summons for the defendant, drawing attention to whether Vice Chairman Lee would appear. However, due to the passing of Chairman Lee Kun-hee, Vice Chairman Lee was attending the funeral and did not appear in court.

Inside and outside the legal community, it is expected that this trial will proceed rapidly enough for a verdict to be delivered as early as within this year. If Vice Chairman Lee, who is responsible for Samsung, receives a prison sentence, it is likely that his management activities will face significant restrictions.

The management succession trial related to the merger of Samsung C&T and Cheil Industries is likely to proceed after next year, but it is also a major risk. The prosecution believes that Samsung systematically lowered the value of Samsung C&T to harm shareholders for the purpose of management succession, and that Samsung Biologics' accounting fraud was also intentional. On the other hand, Samsung argues that the merger of the two companies was a legitimate business activity carried out out of managerial necessity.

It is analyzed that the prolonged judicial risks are also imposing constraints on Samsung and Vice Chairman Lee's management. Since Samsung Electronics acquired the U.S. automotive electronics company Harman in 2016, it has not conducted any major mergers and acquisitions (M&A).

The halt in large-scale M&A by Samsung Electronics since 2017 is evaluated to be due to the increasing uncertainty of judicial risks after Vice Chairman Lee was detained in connection with the state affairs manipulation case, making it difficult to make investment decisions.

While overseas competitors such as Apple and Intel have taken advantage of the COVID-19 economic crisis to pursue M&A and show aggressive management moves, Samsung has not even attempted due to judicial risks.

This content was produced with the assistance of AI translation services.