This case is about the succession crisis at Samsung Electronics Co. Ltd. (Samsung), which eventually led to the detention of the company’s Vice-chairman Lee Jae-yong (Lee) in connection with a corruption scandal. Lee was arrested on February 14, 2017, on charges of bribery and fraud over a high-profile scandal involving the former South Korean President Park Geun Hye (Park) and her associate Choi Soon Sil (Choi). The Samsung heir was accused of paying nearly US$40 million in bribes to Choi to get President Park’s support for his succession in the company. The scandal led to Park’s impeachment. This case also deals with one of the major challenges that organizations face in many emerging markets – corruption – and also highlights the issues arising out of weak corporate governance. It focuses too on the need for family-run businesses like Samsung to pay far more attention to succession planning.
The scandal could have huge implications for the future of Samsung and the family that controls it. Lee’s arrest is a severe blow to the group’s global reputation. Some of the challenges for the returning de facto leader Lee would be to restore public trust in Samsung and to erase the image in people’s minds of a tainted global company colluding with high-profile politicians. Completing the succession plan would also be a huge task for Lee, whose father, Chairman Lee Kun Hee (Kun), is reportedly in a semi-coma. It also remains to be seen whether the incident can shake up the Korean chaebol system of corporate governance and put an end to the decades-old collusive ties between businesses and politics in South Korea.
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The case is structured to achieve the following teaching objectives:
Understand the Korean chaebol system of corporate governance.
Understand the role of chaebols in the Korean economy
Understand the significance of succession planning and leadership development in large family owned businesses.
Identify the problems a family owned business has to face due to the lack of a succession plan.
Study the causes and consequences of corruption scandal at Samsung.
Identify the challenges before Lee going forward and the ways in which he can overcome this crisis.