Quan Xiaoxing
"Samsung Group is preparing to dissolve its future strategy room, a move that will empower each subsidiary to make independent decisions based on its unique circumstances. This marks a new path for the company, one it has never taken before."
On August 25, South Korea's Seoul Central District Court issued a verdict in the case of Li Zaijun’s bribery allegations against Samsung's chairman. The court sentenced Li to five years in prison.
Standing before the judge, Li could not hold back his tears.
When prosecutors recommended a 12-year sentence, Li, who had always maintained a calm demeanor, was visibly emotional and said, "If I can't resolve the current mistrust and misunderstanding, then I have no significance as the head of Samsung."
Following the first-instance judgment on August 25, the court sentenced Li Zaijun to five years in prison, excluding the charges related to his meeting with former President Park Geun-hye. After adjustments, the prosecution's main accusations—bribery, corruption, asset transfer, concealment of proceeds, and perjury—were largely confirmed.
As media attention on Samsung intensifies, the company remains a focal point in the post-Lee Jae-yong era, drawing widespread public interest.
The "3-5 Rule" of South Korean chaebols
Kim Jong-mo, a legal expert in South Korea, explained that the bribery charge was central to the five counts against Li. The determination of this charge directly influenced the other accusations. "Without the bribery facts, transferring assets or concealing income would be impossible," he noted.
"The most controversial aspect of this case is whether Li provided bribes for profit and whether the payments to Choi Soon-sil were given to Park Geun-hye. The first-instance judgment devoted 13 pages to this matter, fully endorsing the prosecutors' claims. The court stated there was a clear 'economic community' between Park and Choi," Jin Chengmo said.
Jin also mentioned that the first-instance ruling determined that Samsung's equity restructuring aimed to help Li gain control over the group. In Jin's view, this judgment essentially confirmed Li's guilt and highlighted the "immoral collusion" between political and economic powers. While there are some minor regrets, he believes the trial was a victory for the prosecution.
However, Zhu Zhenheng, another financial activist in South Korea, argued that the trial still reflects the collusion between chaebols and judicial power. He previously opposed the merger between Samsung and First Knitwear, calling it the "most important part of Li's inheritance of the Samsung Empire." Zhu claimed the merger involved undervaluing Samsung's assets and undermining other shareholders' interests.
He pointed out that while the court acknowledged "unjust collusion" in the judgment, it also revealed the improper connection between economic and judicial powers. Zhu also mentioned the "3-5 rule," which shows public dissatisfaction with how large chaebols often avoid penalties. Under this rule, first-instance sentences for bribery cases usually result in around five years, but subsequent trials often reduce the sentence to less than three years, ending in probation.
After the verdict, both Samsung and the prosecutors expressed dissatisfaction and filed appeals. Samsung's lawyers stated they firmly believe all defendants are innocent and will appeal immediately. Prosecutors, meanwhile, argued the sentence was too light and submitted an appeal to the higher court.
According to reports, former Daewoo Group CEO Kim Yu-jung received a 15-year sentence initially, but the final sentence was reduced to 10 years. Similarly, former Samsung Chairman Lee Kun-hee was sentenced to seven years but served only three years with a five-year deferral.
In 2009, then-President Lee Myung-bak pardoned Kim Young-sam, citing national interests, marking the first time a president granted a pardon to a single individual in Korean history.
Li Zaijun: A Double-Faced Leader
A well-informed source within Samsung shared a rumor: Li's car backseat was filled with Samsung Galaxy phones. When meeting important figures, he would use these devices to promote his own products. However, this was just a rumor until it happened.
During a family event, when a reporter asked for an interview, Li jokingly said, "If you take a Samsung phone, I'll be happy to talk to you." At the time, the reporter was holding an LG phone. Without waiting for a response, Li retrieved a Samsung flagship phone from his suitcase and gave it to the reporter, earning him the nickname "Galaxy Ambassador."
Outside of this, Li left a deeper impression on the Korean public as a "born-with-a-gold-spoon" figure. Born in 1968, Li was the son of Lee Kun-hee, the richest man in South Korea and head of Samsung. His mother came from a prominent media family. As the only child, Li was groomed early for leadership, graduated from Seoul National University, and studied abroad in Japan and the U.S.
In 2001, Li returned to Samsung and began taking on key roles. Over the next decade, he rarely appeared in the media, moving through various positions. Some described him as more moderate than his father, absorbing Western knowledge and showing a "bookish" side. Unlike his father, who was known as the "Emperor Fan," Li's "appropriateness" became one of his defining traits.
An accident brought Li into the spotlight earlier than expected. In May 2014, his father, Lee Kun-hee, suffered a heart attack and fell into a coma.
Professor Li Guoxian, an economics expert at Korea University, explained that under the chaebol system, the spiritual leader plays a crucial role. The collapse of such a leader often marks the beginning of a group's decline. The transition of power is the most sensitive part of any chaebol's operation.
Li was known as a "low-key man," gaining much respect. For instance, he once attended a friend's wedding alone and even flew economy class. His university classmates recalled that they used to cook instant noodles together, noting that while Li had a good background, he was no different from others.
However, over time, Samsung faced multiple crises. On one hand, profit margins declined, and competition intensified. On the other, the Galaxy Note7 explosion led to a crisis of confidence. Under pressure, Li's public exposure increased, and negative media coverage grew. His son was exposed as a "social concern" due to a single-parent family situation, leading to his withdrawal from school and an apology.
His "inheritance rights incident" caused further controversy. According to former Samsung lawyer Kim Jong-cheol, the company implemented a plan in 1994 to help Li inherit the group, allowing him to avoid up to 50% in inheritance taxes. Critics argue that this decision led Li to engage in improper dealings with political figures.
Who Runs Samsung?
For Mr. Kim, an ordinary employee at a Samsung subsidiary, an email at the end of February made him realize that something had changed. Samsung announced through company emails that the future strategy room would be dissolved soon, fulfilling commitments made during a congressional hearing.
Many employees saw this as a significant change, not just a public statement. The dissolution of the future strategy room meant that executives who previously worked early mornings might now operate differently.
Originally established by Lee Byung-chull in 1959, the future strategy room was initially a small department assisting the president with daily affairs. Over time, it evolved into a key strategic body, helping subsidiaries worldwide make plans and adjust operations efficiently.
Professor Li Guoxian explained that the first generation of chaebols relied on the founder's personal decisions. Samsung, being a diversified company, needed a strong internal coordinator, which led to the expansion of the secretariat's role.
Since 2010, the secretariat was renamed the Future Strategic Office. Although not part of any subsidiary, it played a central role in Samsung's operations, handling design plans, resource allocation, and business adjustments. Its dissolution marks a shift toward decentralization, allowing subsidiaries to make independent decisions.
One unnamed Samsung executive told the First Financial Reporter that Li Zaijun believed in honoring promises quickly, and this move would help subsidiaries operate independently, following a new path for Samsung.
Mr. Kim, working at Samsung, felt the shift. While he couldn't directly contact Li, he noticed that many decisions were now made at the subsidiary level, with greater autonomy.
Korean political analyst Zhao Shangxi believes Samsung is forming a system where major subsidiaries handle daily operations, and Li Zaijun coordinates on larger projects from prison.
Even after Li's arrest, major decisions like investments were still reported to him. Zhao noted that this "prison business" model is common among large chaebols. However, Samsung's decision to dissolve the future strategy room may have been to avoid criticism and prepare for the upcoming trial.
The executive admitted that although the company operates normally, strategic decisions involving personnel and mergers are still influenced by Li's situation. Compared to normal times, the limitations in the decision-making system are significant.
Trial: An Old Fortune Valve
Home appliance industry observer Liu Buchen told the First Financial Reporter that Li Zaijun's impact on Samsung might be lower than that of the Galaxy Note7. He believes Samsung, as a family-owned company with modern management, relies more on systems than on individual influence.
Professor Li Guoxian, however, warned about the long-term macroeconomic impact of the case. He noted that South Korean SMEs depend heavily on the chaebol industry chain, and Samsung's crisis could affect employment and national credit.
By June 2016, Samsung had 59 subsidiaries in South Korea, including 15 listed companies. Samsung Electronics alone topped the market value rankings.
According to data from the Seoul Stock Exchange, the total market value of the top 10 Korean groups reached 714.332 trillion won, with Samsung accounting for 352.156 trillion. This represents nearly half of the country's total market value.
Additionally, the KOSPI200 index, originally designed to share risks, has become closely tied to Samsung's stock price. Industry analysts note that foreign investors and institutional investors, holding nearly 40% of Samsung's shares, can manipulate the index through futures trading, potentially harming retail investors.
Zhu Zhenheng emphasized that this trial should not only target Li or Samsung but also challenge the old chaebol system. He criticized the complex ownership structure and legal loopholes that allow chaebol families to maintain control despite holding minority stakes.
Zhu argued that Samsung's performance should be judged by the market, not by the leadership of Li Zaijun. Despite his arrest, Samsung's stock price remained stable and even reached record highs.
Citing the Washington Post, Zhu noted that Samsung's influence is almost comparable to the government. He stressed that without reforming the chaebol system and cutting ties between chaebols and political power, South Korea's reforms will remain incomplete.
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