Samsung: the end of the chaebol era?

Samsung heir Lee Jae-yong’s conviction for corruption marks “a turning point in South Korea’s political economy”, said The Wall Street Journal. The country’s powerful family conglomerates (“chaebols”) were the vital drivers of its post-wwii development, but they have become “notorious for abusing power” – ultimately, to their own detriment. Investors have long applied a “Korea discount”, marking down the chaebols’ market value relative to their international peers. Thanks to the “clean up” operation now under way, that is now “shrinking”. The fact that the leader of the country’s best-known and most valuable business group is now in prison shows just how clearly “the tide has turned”.

The political will for reform is certainly there, said Richard Lloyd Parry in The Times. South Korea’s leftish new president, Moon Jae-in, has appointed a tough enforcer (known locally as the “Chaebol Sniper”) and pledged an end to the lenient treatment that corrupt chaebol leaders routinely enjoyed in the past. Lee’s own father, Lee Kun-hee, was twice convicted for corporate crimes, “but never spent a day in detention”.

Some worry how Samsung, which has yet to name a replacement for Lee, will fare strategically now that it is effectively headless, said Lex in the Financial Times. The Lees have traditionally driven investment decisions yet, so far, there’s no obvious sign of distress. On the contrary, the group’s main “profit engine”, Samsung Electronics Company, has sailed through “the hubbub” unscathed, and is expected to post record profits this year. That raises the question of “just how important the founding family is to managing the group”. Parting company with Lee may not have been Samsung’s preferred course. But it seems unlikely “shareholders will suffer for it”.