Persistent Obstacle JY Judicial Risk... Challenges Are Piling Up

[30 Years of Samsung New Management]
④ Lee Jae-yong Still Attends Court on 1st Anniversary of Appointment
Control Tower, M&A, Registered Director, and Other Shackles

Samsung Electronics Chairman Lee Jae-yong will spend time in the courtroom again on the 27th, marking his first anniversary since taking office. Although it has been eight years since Samsung C&T and Cheil Industries merged, the judicial risks surrounding Chairman Lee remain ongoing.

Chairman Lee, who was indicted in 2020 over allegations of unfair merger practices involving Samsung C&T, has been undergoing a first trial for four years. Although he was reinstated through a special pardon on Liberation Day last year, the prolonged lawsuit over the unfair merger between Samsung C&T and Cheil Industries means he still appears in court two to three times a month.

Lee Jae-yong, Chairman of Samsung Electronics.

The judicial risks surrounding Chairman Lee are expected to hold him back for the next several years. The prosecution and Chairman Lee’s side are strongly opposed regarding the allegations of the unfair merger between Samsung C&T and Cheil Industries, so even if a first trial verdict is reached, it is expected to take at least three to four years for a final ruling from the Supreme Court. If found guilty, Chairman Lee would face restrictions on his management activities again.

The problem is that Chairman Lee’s judicial risks are becoming obstacles to solving Samsung’s challenges. It is pointed out that these risks have caused hesitation at moments when decisive action was needed, leading to Samsung’s stagnation.

Above all, it is hindering the restoration of the control tower that oversees future businesses. The history of Samsung Group’s control tower has evolved through the 'Secretariat - Restructuring Headquarters - Strategic Planning Office - Future Strategy Office.' Although the names have changed, this has been the place where the Samsung head has played a decisive role in managing Samsung affiliates overall and planning business strategies.

However, the Samsung Future Strategy Office was officially disbanded in 2017 after being identified as the root of the political scandal. Since then, three task forces have taken over its role, but there are evaluations that there are limits to discovering and nurturing future growth engines. This is why discussions about expanding and reorganizing the organization are emerging both inside and outside Samsung.

Lee Chan-hee, chairman of the Compliance Committee, an independent legal oversight and advisory body responsible for Samsung’s monitoring function, has also repeatedly emphasized the need for a control tower. Chairman Lee said, "A small sailboat does not need a control tower, but Samsung is an enormous aircraft carrier," adding, "Unless many organizations are completely separated, the absence of a control tower causes problems in terms of efficiency and unity."

Samsung Electronics Chairman Lee Jae-yong. Photo by Jinhyung Kang aymsdream@

Once judicial risks are resolved and the control tower is reestablished, investment and M&A can accelerate. Samsung has laid the foundation for new businesses through corporate M&A. Harman, which became the foundation for the automotive electronic device (auto parts) business, was acquired in 2017 for 9 trillion won. As competition intensifies in core business sectors such as semiconductors and mobile, M&A to enhance competitiveness is essential.

Since the disbandment of the Future Strategy Office, strategic, planning, diagnostic, and M&A functions have been delegated to each affiliate, leaving Samsung without an organization capable of executing large-scale group-level investments. Although there have been ongoing mentions of large-scale M&A, no significant M&A has materialized.

Judicial risks also contribute to Chairman Lee’s inability to remove the label of a non-registered director. Since his term expired in October 2019, he has maintained the status of a non-registered executive. Among the heads of the four major conglomerates, Chairman Lee is the only non-registered executive. The business community expects that the timing of Chairman Lee’s return as a registered director will be determined based on the first trial results.

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