A South Korean court has just found Samsung head Lee Jae-yong guilty of a host of corruption-related crimes — including bribing South Korea’s former president — and sentenced him to five years in prison.
The prison sentence is a huge deal in South Korea. Samsung, which sells more smartphones than any company in the world, is a business empire that accounts for roughly 15 percent of the country's entire economy. The ruling is also a symbolic blow to South Korea’s elite business class, which has strong ties to the country’s political leaders and has long enjoyed immunity from all kinds of unsavory business practices and corruption.
That’s been particularly true for the Lee family, which founded the company in 1938 and has run it ever since, amassing staggering amounts of political and financial power along the way.
But the corruption scandal has damaged the company’s image, with South Korean authorities pursuing not only Lee but several other senior executives. It has also sparked questions about whether the Lee family dynasty should continue to steer the company or cede to new leadership.
South Koreans billed Lee’s case as the “trial of the century,” as it was the first major legal battle stemming from a scandal that led to the historic impeachment and removal of South Korea’s former President Park Geun-hye in March.
The court ruled that there was evidence that Lee helped donate tens of millions of dollars of Samsung money to slush funds for Park’s friend and confidante Choi Soon-sil in exchange for favorable treatment. He sought to secure the government’s backing of a controversial merger that was opposed by Samsung shareholders but that allowed him to expand his control over the sprawling company.
Lee denies wrongdoing and has said he’s going to appeal the decision.
Prosecutors had wanted a significantly harsher 12-year prison sentence, so in some ways, Lee got off relatively easily. Still, the punishment is remarkable — and a signal that the country’s corrupt business elite might see more limits to their power in the future.
Samsung is a metaphor for what ails South Korea
Imagine that a court found Apple’s CEO Tim Cook guilty of bribing the president in order to secure favorable treatment from government regulators and was sent to prison for it. Imagine the chaos it would cause inside of one of America’s most vital sources of innovation and growth, and the hope it would elicit among the public that perhaps the government can reduce business elites’ sway over society.
That scenario is basically playing out in South Korea at this moment — except even more intensely than you might think.
Samsung is South Korea’s largest and most culturally dominant company. It’s most well-known internationally for manufacturing high-quality cellphones and processing chips, but it’s also involved in other businesses, including home appliances, hotels, insurance, shipping, hospitals, and pharmaceuticals.
Lee, the third-wealthiest person in South Korea, is the third generation of his family to lead Samsung. He became the de facto leader of the company after his 75-year-old father, Samsung chair Lee Kun-hee, suffered a massive heart attack in 2014.
Samsung has actually fared well recently, despite the aura of scandal that surrounds it and the fact that Lee was in jail for months during the trial. The company recently posted its best-ever quarter of profits, a remarkable turnaround after the company had to suspend sales of and recall its notoriously combustible Galaxy Note 7 last year.
But Lee’s conviction highlights bigger questions in South Korea over the way families operate large companies in the country.
South Korea’s economy is dominated by chaebols, or family-run conglomerates (the term literally translates to “wealth clan”). They control networks of companies through a holding structure that allows families to have outsize influence over the businesses despite having small direct shareholdings. They often have deep ties to the government and use those relationships to their advantage.
On one hand, chaebols are key sources of growth for the economy and spearheaded South Korea’s extraordinary economic rise from struggling developing nation to economic powerhouse. “Chaebols were instrumental in making South Korea the 11th-largest economy in the world,” Wendy Cutler, vice president of the Asia Society Policy Institute, told me.
But they’re also symbols of corruption in South Korean life and exemplify how the country’s business elites are often above the law. Lee’s father was sentenced to prison twice for corruption charges including embezzlement and tax evasion, but he was also pardoned both times.
Lee might be hoping for relief of that kind, but South Korea’s new president, Moon Jae-in, campaigned specifically on a platform of cracking down on chaebols and ending private sector/public sector corruption.
A spokesperson for Moon said on Friday that the president hoped the case would be "an opportunity to eradicate the longstanding cozy relations between politics and business, which have been an obstacle to further advancing our society."
We’ll know the answer soon enough.