On August 25th, the final verdict to Lee Jae-yong, the Vice Chairman of Samsung Electronics and the effective leader of Samsung Chaebul, will be delivered for the heir on bribery and embezzlement, diverting assets overseas, concealing the gains from a criminal act, and committing perjury. This trial is drawing national and international attention because the court decision directly affects not only the future of Samsung Chaebul but also the trial of the first impeached Korean President, Park Geun-hye.
Let’s go back to the owner risk. Owner risk is defined as “the big risk or loss due to the personal event or the dogmatic decision making of a heavy shareholder” in Naver. In the past, many leaders of Chaebuls in Korea were reported for illegal behaviors in the newspaper and many of them were arrested and spent months and years in the prison. Some of them include Lee Jae-hyun of CJ and Choi Tae-won of SK.
It is very natural that the violator of a law is punished but the punishments for the owner of Chaebuls or large companies in Korea were alleviated in many cases because of the owner risks mentioned above. The main reason is that many innocent others such as shareholers, employees, and customers may get hurt due to the absence of owner in company management. In addition, the absence may delay important business decisions and, in turn, lose the timing for business actions. It results in the massive loss of Chaebul’s or company’s growth and profits.
Samsung Chaebul is the largest in Korea, posessing Samsung Electronics, Samsung SDS, and many other companies. If we consider shareholders, employees, and customers of these companies, most of Korean will be included as stakeholders of Samsung Chaebul directly or indirectly. Thus, the imprisonment of Lee Jae-yong gives worries to almost all of the Koreans.
However, in spite of the owner risk, the stock price of Samsung Electronics reached its highest in the first half of 2017 and went higher more than 20 percent since his arrest. At least, no owner risk was realized after Lee’s arrest and imprisonment in stock prices of Samsung companies.
When an owner of Chaebul is arrested, the media emphasize the owner risk of delay in major investment decision. If this is the case, the stock price should fall since investors never consider the internal situation of the company or the owner event. Hence, we can conclude that the owner risk is not so serious for the Samsung Scandal in Korea.
In contrast, the arrest to Lee Jae-yong can give a good chance to Korean society for breaking the chain of decades-old collusive ties between politicians and businessmen. This will increase the sustainability of Korean Chaebuls and companies in the long run. Until today, we have been lenient to the leader of Chaebuls since huge owner risk could be realized. In many cases, the former Korean presidents granted the amnesty to many leaders of Chaebuls to reduce the owner risk. However, this is not necessarily true.
Now, Korean society has much been upgraded. We need to change the development strategy from old quantity-oriented and Chaebul-based into quality-oriented and fairness-based strategy. Based on these unhappy experiences, companies in Korea will put more efforts on managing companies ethically without expecting help from collusive connections between them and politicians. This eventually will improve their sustainability in the market in the future.
Lee Yong-myon email@example.com
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