The word ‘chaebol’ was a combination of the Korean words chae (wealth) and bol (clan or group). It referred to a group of massive, mostly family-run business conglomerates which dominated South Korea’s economy and wielded extraordinary influence over its politics. Many of South Korea’s chaebols dated back to the end of World War II. As US and international aid flooded Seoul following the Korean War that took place from 1950–1953, the South Korean government provided financial support to chaebols in the form of special loans as part of an intensive effort to reconstruct the economy, especially important industries such as construction, chemicals, oil, and steel. .

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GENESIS OF THE SCANDAL

In May 2014, at the age of 72, Kun suffered a massive heart attack that totally incapacitated him. Since then he lay in a vegetative state at the Samsung Medical Center in Seoul. As chaebols often passed power down from generation to generation, it was evitable that Kun’s only son Lee would step into his father’s shoes. Lee had served as Vice President of Strategic Planning at Samsung in 1991, but his first major role within Samsung was as a COO in 2009. He was appointed as vice chairman of Samsung in 2012, which, according to analysts, was a move to consolidate his status as the heir to Samsung. However, Lee was not thought to play a major day-to-day role in the running of the company, with three CEOs serving below him. However, he still had a final say in major strategic decisions at the group.

HOW THE SCANDAL UNFOLDED

South Korean cable TV network JTBC broke the news of the scandal in October 2016. According to JTBC, it had found a tablet left behind in the office of Choi. The tablet contained evidence that she had received secret documents and interfered in state affairs. JTBC handed the tablet over to Korean prosecutors. However, Choi said it was not her device. Local media in South Korea and rival parties of Park blamed Choi by criticizing her for leveraging her relationship with Park to pressure giant local corporations like Samsung to donate money to her foundations.

IMPACT ON SAMSUNG

As an effect of Lee’s conviction, The Future Strategy Office, Samsung’s centralized headquarters, was totally split and key staff members were laid off. Investors of Samsung were concerned that Lee’s imposed absence would generate a leadership vacuum at Samsung and hurt its capability to make key strategic decisions. ..

THE ROAD AHEAD

On February 5, 2018, a South Korean appeals court suspended Lee’s jail sentence, setting him free after a year’s detention. Lee’s initial five-year prison sentence was cut to two and half years and suspended by an appeals court, and he was released after a year in jail. The other executives were also released on suspended sentences. The judge cited insufficient evidence to prove an exchange of favors in Park’s case. Analysts opined that the final judgment was still to be given by the Supreme Court, where Lee’s destiny might take yet another turn.

EXHIBITS

Exhibit I:Timeline of Samsung Group
Exhibit II: Key Financials of Samsung Co., Ltd. and Subsidiaries For the year ended December 31
Exhibit III: Chaebols’ Share of South Korean Stock Index (as of April 2018)
Exhibit IV: Samsung Group’s Ownership Structure
Exhibit V: Cross-Holdings among Samsung Companies
Exhibit VI: Samsung’s Circular Investing Structure
Exhibit VII: The Lee Family Tree
Exhibit VIII: Effect of the Merger between Samsung C&T and Cheil Industrie
Exhibit IX:Excerpts from Samsung’s Global Code of Conduct
Exhibit X: Quarterly Operating Profits at Apple Inc. and Samsung Co., Ltd