In its half-decade of escalation, South Korea’s most recent chaebol scandal has lurched between spectacle, shame and Samsung. Pique over an unattended puppy; vast cash-for-favours payments; a shaman at the heart of government; the historic impeachment and jailing of a president; a showjumping gift-horse; million-strong protests in the streets.
Last week, in a denouement that underscored the scandal’s dimensions, the authorities reimprisoned Lee Jae-yong, de facto head of the Samsung group and the nation’s most powerful business leader, for bribery. It was an outsized debacle for a supremely outsized company.
It is tempting, say Samsung-watchers, to view the whole protracted affair as corporate Korea’s Ragnarok moment: a messy downfall of the industrial gods and the glittering structures they built, from which a new, cleaner world might be born. The reality is that Samsung could emerge from all this even more powerful and more central to Korea’s national project.
Lee’s enforced membership in the club of jailed Korean corporate supremos reignites the debate over the extraordinary position of Samsung, the largest family-owned chaebol business empire, representing more than a quarter of the value of the Seoul stock market. The nation’s sharply defined love-hate relationship with the company has become more deeply entrenched.
The scandal has galvanised critics who say Samsung’s scale over-concentrates talent and suppresses innovation elsewhere in Korea. But the company’s appeal to the nation’s best graduates survives, and many view the attack on Korea's most precious gem as politically motivated. At its most fundamental level, the scandal raises the question of how far Samsung — as the world’s biggest maker of memory chips and smartphones — should simultaneously define the Korean economy’s ambitions and be reined in by the state.
There are a number of arguments, says Sea-jin Chang, a professor at the National University of Singapore, to support the theory of scandal as turning point and the view that Samsung’s importance will decline from here. The sprawling business system that the group represented, and which was worshipped as a tool of nation-building, has been made to look outdated, slavishly attached to non-core parts of the empire and vulnerable to disruption in a digital world. Particularly so if the government cools its endorsement of its global corporate champion.
At the same time, attitudes towards Samsung may harden as the heirs of the group’s late patriarch face an inheritance tax bill for about $10bn that could force the sale of large parts of the business, diminishing its sense of impregnability. Furthermore, the 18-month imprisonment of Mr Lee, 52, leaves Samsung exposed. While not necessarily reducing his overall influence on the conglomerate, it removes him from the kind of split-second decision-making that global business demands.
Perhaps the hardest blow, though, lies in the roots of the scandal: the machinations demanded by the cross-shareholding structure through which the Lee family maintains control of the group. Lee said in May he had no plans to pass control to his children. His comments were greeted with scepticism. In fact, said Geoffrey Cain, author of Samsung Rising, the means by which he could do that have probably been closed even if he wanted to. That leaves Lee in a prison cell with the devastating, face-losing thought that, after him, Samsung may become the first major chaebol without a family owner.
In the face of all of this, said Jun Kwang-woo, South Korea’s former chief financial regulator, Samsung’s market power and significance to the economy is set to grow. The sale of businesses would force Samsung on to a learning curve of divestment and streamlining that it should have embraced long ago.
The Covid-19 pandemic has created stupendous demand for the main products — TVs, smartphones and displays — of Samsung’s flagship electronics business. A worldwide chip shortage attests to surging demand for products in which Samsung is dominant. Its investments in artificial intelligence look prescient. The global rollout of 5G mobile services is a chance for Samsung to grab even greater market share.
Under strict theories of portfolio management, said Mr Jun, South Korea's dependence on Samsung might look like an unwise concentration of resources — until it pays off stunningly and insulates the economy from a crisis that has battered other countries.
It is easy to forget how close Samsung, and other chaebol, such as LG Electronics, came to collapse during the 1997 Asian financial crisis. In fact, they emerged markedly stronger. That was not Ragnarok; nor is this.