South Korea


The Samsung family empire

An effigy of Samsung Electronics vice chairman, Jay Y. Lee, stands outside a Samsung Electronics office building. Seoul. 2019. Photograph by Kim Hong-ji. REUTERS.

Excerpted from Samsung Rising by Geoffrey Cain. Published by Currency, an imprint of Random House, 2020.

In 2010, a Samsung employee tipped me off to a leaked video of Samsung recruits standing in formation before a scoreboard displaying a motto. In black-and-white rococo regalia, including a cravat—attire as ornate as the military dress of a French musketeer—a cheerleader uttered a battle cry: “Youth with boiling blood, conquer the summer season!”

The phrase “pride in Samsung” was hoisted on a banner on a nearby hill amid the pine trees and fertile summer grass. Amid a sea of blue costumes and yellow capes, the recruits on the field smartly fell into formation in the shape of a trapezoid. Senior employees watched from the sidelines, behind the cheerleader, their company division identified by their color of dress.

“Victorious fighting spirit! Sensational telecommunications, team C!” the cheerleader shouted. She jumped in the air, then flung her right arm out, ruffles on her wrists, and snapped a forefinger in a white glove.

“Start!” The day’s recruits were the newest class to enter the gates of this silicon castle, at an event called the Samsung Summer Festival. They’d been preparing to join the knighthood of Samsung Men and Women for more than two weeks. They’d been through boot camps, hiked, and suffered sleep deprivation while learning to work together and treat each other as family.

Four Samsung recruiting divisions performed that day, each wearing its own distinct uniform, in what was meant to be a team-building exercise. It was meant to be fun. But the company elite were watching.

The recruits broke formation and sprinted outward to form a rectangle, picking up bags at their feet to create a checkered pattern using the Samsung colors of blue and white, spelling the word “victory” one letter at a time.

The recruits then formed the numeral “10,000,000”—the number of mobile phone sales that Samsung had set as a tar get. That year’s Samsung D500 handset—a simple, compact slider phone—had rung in a bonanza. The recruits formed a picture of the phone, followed by the word “champ,” before forming a digital watch with the word “hero,” then another mobile phone with the word “star.”

“It was amazing, scary and weird,” said a Samsung employee whose manager helped run the event. She and many others likened the pageantry to North Korea’s mass games ceremony.

A Samsung public relations executive, told of the comparison between Samsung and North Korea, told me over Korean barbecue one night, “That’s offensive. We are a company. Don’t compare us to North Korea. Compare us to Apple, IBM, HP.

“Yes, we’re secretive,” he admitted. “But so is Apple. The Samsung Man is just a stereotype . . . It’s not the company I see.”

Samsung hates it when journalists draw comparisons between Samsung company practices and North Korea, even though such comparisons are fairly common among Samsung employees themselves. Steve Jobs had his own cult at Apple, Samsung employees tell me. Samsung isn’t the only electronics maker with cultish tendencies.

Pointing to similarities between Samsung and other companies doesn’t dismiss the common culture and heritage between North and South Korea. Samsung is a powerful South Korean chaebol. Chaebols are South Korean family-owned conglomerates that wield power and political influence. Samsung was founded by Chairman Lee Byung-chul, also known as Chairman Lee I. He ran the Samsung group from 1938 until his death in 1987. Chairman Lee II, Lee Kun-kee, son of B.C. Lee, became the second chairman of the Samsung Group, from 1987 to the present, transformed Samsung into a global nameplate brand. He suffered a heart attack in May 2014 and has not been seen in public since. Much of the company is now in the hands of Jay Y. Lee, heir apparent to the Samsung empire. Jay Lee’s tenure has not been without controversy. In 2017, Jay was sentenced to five years in prison for bribery and embezzlement. Released early from prison on appeal, a panel of judges upheld but reduced the severity of his bribery conviction. He is currently facing retrial after Korea’s Supreme Court voided his second ruling and may be sent back to prison with possibly expanded charges.

Chairman Lee II and his son, Jay Y. Lee, were collectively named Forbes’s most powerful person in Korea in 2014 and the 35th most powerful person in the world. Lee II has a net worth of over $40 billion, and his son Jay Y. Lee’s worth is estimated at $5.5 billion.

The fact is that this South Korean chaebol has little in common with the more entrepreneurial and shareholder-driven firms in the United States. Even the biggest US companies do not enjoy the privileges of companies in South Korea today. More than half of the family leaders of the 10 biggest chaebol groups are convicted criminals. All have been pardoned by the president, often without serving prison time. Three of them, including Samsung chairman Lee Kun-hee, have been pardoned twice. From January 2015 to February 2016, the outside members of Samsung Electronics’ board of directors—who were supposed to be independent, as a check on corporate governance—unanimously approved every proposal put forward by the company, except the two times a director was absent.

Imagine the heirs of the Carnegies and Rockefellers being so powerful and revered that the New York Times would self-censor its coverage out of deference. Imagine a White House pardoning the heirs of Sam Walton or Ray Kroc as they ran the operations of Walmart or McDonald’s from their prison cells, or seasoned journalists turning their eyes away when confronted with Donald Trump’s conflicts of interest between his presidential duties and his businesses.

Because of the outsized privileges of Samsung and the Lee family, South Koreans tell me Samsung has grown too big to fail.

• • •

In fact, Samsung has no equivalent among its Silicon Valley peers. Nor does the company have Silicon Valley’s rebellious, counterculture origins. There is no marijuana-smoking college-dropout equivalent of Steve Jobs; there is no mischievous Mark Zuckerberg ranking coeds on his dorm room website. There is no flamboyant engineer like Sony’s Akio Morita, who survived World War II, co-founded the company in a bombedout department store, and drove its success.

Sitting down for interviews in Seoul, I was often met with looks of suspicion and distrust—even terror. A number of South Koreans told me that I might come to harm for writing about Samsung.

I treated such concerns as groundless conspiracy theories, but they did show me how much fear the company can strike in the minds of South Koreans.

Everywhere I went in South Korea, the “Republic of Samsung” and its imprint were inescapable.

“Do you plan to criticize Samsung?” one former senior employee asked me over lunch.

In fact, Samsung has no equivalent among its Silicon Valley peers.

“Samsung helped me with my magazine reporting,” I told him, “granting me official access. But I intend to ensure that my coverage is independent and credible. Samsung has no say over this project.”

Throughout my reporting, key contacts would be coached on what to say, sources would go quiet, and my hard-earned access through unofficial channels would go cold.

• • •

On April 29, 2016, I visited the Chairman Lee II’s presidential suite at the Kempinski Hotel Frankfurt Gravenbruch—room 312. It was a majestic duplex, furnished with a Samsung television, overlooking a pond near Frankfurt. Over the years, it had become the closest thing to a holy site for Samsung. The chairman chose the hotel for a reason: Frankfurt for its industry and the Kempinski for its quietude. With fresh air and forests nearby, it was a refuge for self-reflection.

“Samsung sent a film team here a few years ago to make a documentary,” my hotel guide told me on my tour. Samsung’s executives, I later learned, returned occasionally for pilgrimages.

We made our way downstairs through the lobby, decorated in the fashion of a Bavarian hunting lodge. Our guide opened the doors to the main conference room, where what would become known as Samsung’s revolution took place.

The hotel was under renovation when I visited, so the site wasn’t completely historically accurate. But I stood in the conference room in awe. This was the site of the speech that kick-started a radical managerial transformation within Samsung. It was a moment that would help redefine the world of tech.

On the morning of June 7, 1993, the assembled Samsung executives were seated around the table with notebooks, wearing identical white shirts and blue or black suits. At the front of the room stood a speaker’s table with a bed of pink flowers—a South Korean tradition. Behind it was a lavish oil painting of the canals and townspeople of Venice.

That morning, as the chairman entered the conference room, the Samsung executives stood up and clapped. The air in the room was heavy with tension.

The chairman wasn’t sleeping more than two or three hours a night. He sat down, adjusted the microphone, and—without a script or preamble—unleashed his fury upon them for the next eight hours. Samsung has never released the full transcript of the speech. But through interviews with eyewitnesses, videos, media reports and official company materials, I was able to piece together its key elements.

“I have felt a cold sweat running down my back at the thought of this crisis,” the chairman said, as paraphrased in an internal booklet called Samsung’s New Management. “We are standing on the edge of a cliff facing a life-or-death situation.

“The Cold War has ended, but a more intense economic war has begun. In this new war, a country’s firepower will be determined by the level of its technology,” he warned. “Many people at Samsung don’t realize how cold and cruel this technological warfare can be.”

He was determined to cut defects to raise quality, a strategy that Sony and Samsung’s other Japanese rivals had mastered. “At Samsung, we must adhere to three credos: Faulty products are our enemy, faulty products are the root of all evil and if we produce a faulty product three times, we must take it upon ourselves to resign.”

Over the next three days, in sessions that ranged from eight to ten hours a day, he expounded on his new philosophy and strategy, barely pausing to use the restroom. Executives were given box lunches and sandwiches to get through the day.

“Change everything except your wife and children,” he said, using a phrase that became his motto. Samsung called his philosophy “perpetual crisis.”

The “Frankfurt Declaration,” as these three days came to be called by those inside Samsung, became part of company lore.

The speeches were “absolutely unexpected by anybody, including myself,” said the chairman’s aide, Hwang Young-key. “It was quite a well-aged message. He’d been thinking about it for years and years.”

Not everyone was convinced by the previously awkward heir, now suddenly bursting with charisma. Some thought they were being collectively reprimanded, when personally they had done nothing wrong. One executive, Oh Jung-hwan, said that Lee Kun-hee’s rebuke of his executives included “expletives and vulgar words.”

On the third day, the chairman asked his executives over a meal what they thought of the previous three days.

“I’m sorry, sir, but quantity also matters,” said one man at the table. “I think quality and quantity are just like two sides of the same coin.”

Chairman Lee, holding a spoon, threw it on the table and stormed out of the room.

Clearly the speeches in Frankfurt alone were not enough to turn the company around and transform the culture. Over the next three months, the chairman went on a whirlwind tour to London, Osaka and Tokyo, giving 48 talks, amounting to 350 hours of lectures. Some of these lectures went on for as long as 16 hours.

“After two weeks, we had to start washing our underwear ourselves and hang them on the hotel veranda, to the protests of the hotel management,” said Hyun Myung-kwan, head of the chairman’s secretariat, who accompanied the chairman on the tour.

“I don’t know how he did it,” his nephew Henry Cho admitted. In the end, his speeches came to 8,500 pages of transcripts. The company began calling Lee’s speeches the “New Management Initiative.”

Chairman Lee, holding a spoon, threw it on the table and stormed out of the room.

The chairman was building a quasi-religious corporate culture, what South Koreans called “emperor management.” But there was a problem.

“These were not, at the time, very well organized messages,” said Hwang. The chairman gave Hwang the job of disseminating his philosophy throughout the company. “He just poured out what he had in mind.”

With a team from the chairman’s office, Hwang was tasked with designing a book about the chairman’s philosophy, as well as a comic book, and films and pamphlets to ensure Samsung’s hundred thousand managers and employees understood the chairman’s message.

Samsung began distributing the book of proverbs, called Change Begins with Me: Samsung’s New Management, and a raft of other educational materials to every recruit.

“It was kind of like Chairman Mao’s red book,” joked former vice president for sales and marketing Peter Skarzynski, “but it was Chairman Lee’s blue book.”

Executives read the chairman’s proverbs, and some hung them up on their walls.

A comic strip called Let’s Change Ourselves First: A Comic Book About Samsung’s New Management Story was published in 1994 by the Samsung Economics Research Institute (SERI). The cartoons were professionally drawn by famous South Korean cartoonist Lee Won-bok. In it, Chairman Lee chided Samsung’s executives for being arrogant and petty and lacking manners. One cartoon showed a Samsung Man getting drunk, sticking his face in a noodle bowl and declaring, “This is my country,” in front of a Western businessman who, sipping wine, calls him “uncivilized.”

“How miserable it is to become a country which is economically subordinate to other countries,” the book went on. The statement was accompanied by an illustration of American, Japanese, Russian and Chinese villains ganging up on a placid, scholarly Korean aristocrat.

“If you know your enemy, you yourself can win every battle,” the comic book continued, calling on Samsung employeesto plan their strategy properly and work together for the coming fight. Their success, the chairman declared, required the trinity of government, people and corporation, unified under a grand cause—with business at the vanguard.

“To make myself, my country, the Korean people, my children and my descendants successful,” the comic book claimed, “we should make a new leap forward.”

In 1993 Samsung employees watched 30-minute sermons by the chairman every morning for several months on the inhouse broadcasting service, in which Lee ordered his employees to examine their morality and rediscover their pasts.

The chairman instituted a 7:00 a.m. to 4:00 p.m. workday to improve his employees’ productivity and allow them time for self-improvement classes, rather than having them work late nights every day. Of course, that meant the actual working hours were “more like 7:00 a.m. to 10:00 p.m.,” as Kim Namyoon, an engineer, told me.

In 1995, the chairman’s New Year’s gift to family and friends was Samsung’s new black mobile phones. But he was embarrassed to discover that some were returned because they were faulty. Clearly, the chairman’s grand proclamations weren’t getting through.

In March of that year, he ordered his employees to prepare a giant bonfire—a sort of purification ritual—near the mobile handset factory in Gumi, an industrial city in the south-central part of the country.

The chairman summoned factory workers and engineers to a courtyard, assembling them in phalanxes against the barren, wheat-colored mountains. They were made to don headbands that read QUALITY FIRST. A banner over the courtyard read QUALITY IS MY PRIDE. A virtual mountain of cell phones, fax machines and whatever else was deemed junk—over 140,000 devices worth $50 million—stood before them.

A few employees at the front approached a microphone, raised their right hand and read pledges that they would treat quality control with the utmost seriousness. The chairman and his board of directors listened from a row of seats nearby.

At a prearranged signal, nine employees rummaged through the mounds of metal and plastic, hammering each phone or device into pieces and throwing the shattered remains into a pile.

Then they “covered the pile with a net and poured petrol on them,” Gordon Kim, Human Resources Director, told me, and set them on fire. After they had melted and burned, a bulldozer razed the remains.

“If you continue to make poor-quality products like these,” the chairman announced to the workers before him, “I’ll come back and do the same thing.”

Some of the people who had designed and built the phones cried. It was “as if their babies had died,” Kim Seon-jeong, a former financial executive, told me. Moreover, to be humiliated like that before the Samsung “emperor” was the ultimate loss of face.

But the strategy worked, and Samsung began producing quality phones. Samsung now makes and sells more phones than Apple.

• • •

While the chairman promulgated an image within the company as a globally minded leader, he perpetuated a dynastic Korean tradition behind the scenes. He made it clear that he eventually wanted to pass the entire Samsung empire to his first and only son, Jay Y. Lee (in Korean, Lee Jae-yong), a dapper and well-spoken doctoral candidate at Harvard Business School.

The former financial executive, Kim Seon-jeong, who was involved in some of the succession planning, told me that a tranche of high-level executives were involved in drawing up plans for the sensitive inheritance process, exploiting legal loopholes, cash gifts and financial tools like convertible bonds and bonds with warrants.

“That was the perfect tool for the succession plan,” corporate governance lawyer Jisoo Lee told me. The plans got under way in early 1995, when Chairman Lee gave a gift of money to his children, which they used to buy shares in unlisted Samsung holdings at what seemed like bargain prices.

The companies went public a few months later; share prices jumped on the open market. The heirs sold them off for a small fortune and used the lucrative earnings to buy shares in the Samsung Everland theme park. The succession plan established Everland as the de facto holding company of the Samsung empire, effectively giving the chairman’s children a vehicle through which to gain control of the empire’s cross-shareholdings with a minimal financial stake.

Samsung now makes and sells more phones than Apple.

“We knew that this transaction was problematic,” said Cho Seunghyeon, a lawyer who challenged the deal with a group of corporate governance activists. But he failed to get it reversed in the courts. “It was designed to keep power in the family at any cost.”

A South Korean court later ruled that two Samsung executives had illegally sold controlling shares in Everland to Jay Lee at a below-market rate. Although convicted, the two executives did not serve prison time. Executives at Samsung were extremely loyal to the Lee family, eager to win the patronage of the chairman.

“They were all sort of falling over themselves saying, ‘It’s my fault,’ ” Kim Seon-jeong said. “People were lining up to go to jail for [the chairman].”

What was curious was the fact that the shareholders supported the succession plan, acting against their own immediate interests, forfeiting their right to buy the unlisted shares at a market price and therefore allowing the chairman’s family to take them over.

• • •

As his health deteriorated, the chairman prepared to hand the Samsung empire to his only son, Jay Y. Lee. Those around Jay treated him with near-absolute reverence. Everything was done to ensure that he looked good and was able to ascend to the role of chairman without blundering.

“The whole room would stand up and clap and bow and things like that as he would make his way to his seat,” former vice president for sales and marketing Pete Skarzynski told me. “He’s the chairman’s son. He would be your future boss someday.”

An eager learner, Jay rarely made direct, substantive statements; instead, he chose his words carefully and asked a lot of questions.

“He’s sort of like a god inside the company,” said former senior vice president for content and services Daren Tsui, who met with him four times. “Every little thing that he does is analyzed, and it becomes basically an edict right away.” Fortune reported that when he doled out mild criticism about Samsung’s television marketing efforts in early 2015, “30-year veteran Park Gwang-gi, an executive vice president and the unit’s head of strategic marketing, was said to be so rattled by Lee’s criticism that he immediately resigned his position.”

Reserved and dapper, Jay spoke eloquently and, in public, almost always appeared in a conservative suit and thinrimmed spectacles. “He’s exactly the kind of guy you would want running your company,” said Peter Weedfald, who made presentations to the future chairman in New York. “He handled himself with poise in front of people like Colin Powell and Rudy Giuliani. It was impressive.”

Kang Tae-jin (T. J.), former senior vice president at Samsung’s Media Solution Center, said of Jay: “I had the impression that Jay Y. is probably more of an introvert than an extrovert. . . . But I think through training and education he’s able to turn on and display leadership quality.”

“He’s nice,” another South Korean mobile employee at Samsung told me, “but he doesn’t have the charisma of his father.”

It was a sentiment that was repeated to me by a dozen South Koreans who met him.

Growing up under the tutelage of Japanese and English teachers, Lee was a sportsman, equestrian and polyglot. He studied East Asian history at Seoul National University, South Korea’s equivalent of Harvard, which gave him the foundation in arts and letters favored by Samsung’s ruling family. Jay continued his studies and received an MBA at Japan’s Keio University, where he studied Japanese business history and practices. There, he wrote his thesis on the Japanese currency, the yen, and the role of its sharply rising value in the 1980s boom and the subsequent decline of Japan.

In 1995, he began a doctorate at Harvard Business School, where he cultivated an interest in the dot-com world of eBay and Amazon. Three years later, he married (and later divorced) the granddaughter of the founder of Daesang, a packaged-food company, and left Harvard without completing his doctorate, looking to get more hands-on business experience.

“He was not involved in daily operations of any business of Samsung Group,” the chairman’s aide, Nam S. Lee, who accompanied Jay on trips, told me. “But he wanted to make an investment in new, promising business areas.”

Jay had everything a Samsung prince and future leader needed: personality, likability, curiosity. But he lacked one prerequisite: he had no balance-sheet success story with which to prove himself.

“Jay Y. Lee was eager to participate in management not a day later than possible,” wrote one of Samsung’s lead lawyers, Kim Yong-chul, in his memoir Thinking of Samsung. “The result of this anxiousness was ‘e-Samsung.’ ” In 2000, Jay became the chief shareholder of a group of more than a dozen new ventures under the name “eSamsung,” consisting of an online financial services aggregator, a network security firm and other dot-com investments popular at the turn of the millennium.

“But a Samsung style of management in a venture business was a recipe for disaster,” Kim Yong-chul wrote. “And true it was.”

“e-Samsung was supposed to be the crown prince’s sensational debut,” the lawyer wrote. “It didn’t sit well with me at all. . . . Saying that it would turn out well because it had Lee Jae-yong’s name on it, they offered [me] an investment opportunity as though doing me a great favor. Though I didn’t feel good about it, they said it was looking so good that I invested $20 million won [almost $17,000 at the time].”

Jay, the lawyer recalled, didn’t show up to many e-Samsung meetings, instead treating his executives to barbecue and drinks after work.

In 2000, the dot-com boom went bust, and a similar effect was taking hold in South Korea. Shareholders cried foul that e-Samsung was benefiting unfairly from the Lee family’s favoritism, getting millions of dollars in investments from another Samsung affiliate, even while the future looked grim. Soon, insolvent and with $20.4 million in losses, e-Samsung was shut down.

But Jay Lee, protected by the Samsung empire, wasn’t the one to take the brunt of the losses, despite having invested his own money. Samsung ordered nine Samsung affiliates to buy up the failing eSamsung shares, relieving Jay Lee of much of the financial damage—a decision that sparked a government investigation. Merrill Lynch claimed that the e-Samsung shares were overvalued.

“I dispatched two Restructuring HQ legal team lawyers . . . to the investigation site,” Kim wrote, “. . . to destroy the relevant documents. This effort was successful, and the Fair Trade Commission (FTC) found us not guilty.”

Kim explained how he personally instructed employees, using a training manual, to destroy evidence and protect their leaders in the case of an FTC investigation by the Korean government, a tactic he called the “FTC checkpoint.”

“FTC investigators cannot show up with a warrant—they need to have a certification,” he told the employees. “So first, buy time by checking their certification. During that time, download all the documents from the computer and hide them, and delete everything on the computer. If there isn’t enough time, deleting the files is the priority.”

Over the years, South Korea’s FTC investigated and fined Samsung Group affiliates six times after they were caught destroying evidence, blocking the investigators from entering and obstructing justice.

With the failure of e-Samsung coming on the heels of the high profile failure of Samsung Motors in 1999, the mood within the company was glum. “Failing in cars, failing in ventures,” employees said.

Minority shareholders complained that the debacle showed that Jay Lee was more entitled than he was competent. In the aftermath, Jay took on a lower profile, one carefully managed by company aides. He focused on learning the ropes under G.S. and others and serving as a liaison with Apple and other companies that needed Samsung components.

• • •

Jay Lee was reduced to attempting only modest reforms in the Samsung empire. The Galaxy phone line wasn’t recovering from slippery sales, and the Samsung-versus-Apple wars had evolved into a ground war in an increasingly tough smartphone market.

Jay Lee sold off Samsung’s corporate jets and got rid of its sluggish chemical and weapons companies, raking in almost $4.3 billion that could be put to better use in businesses like smartphones. He sold the Samsung Life Insurance building, a symbol of the company’s history beloved by his grandfather, founder B.C. Lee, for $496 million.

Then, on March 24, 2016, Samsung Electronics issued a potentially groundbreaking announcement. In an auditorium filled with 600 employees, senior executives signed a document promising major changes in the way the company was run. They pledged to do away with their authoritarian, top-down hierarchy. Going forward, they intended to transform Samsung’s militaristic culture into that of a flatter, more agile startup, under the initiative “Start up Samsung.”

Changes were afoot. The months ahead would be trying for Samsung executives. The Samsung Summer Festival, a weekend of mass games, was canceled. The company cut down on the number of job titles, reports and meetings and encouraged employees to speak up more. Excited young managers were encouraged to act more like executives in Silicon Valley.

Jay Lee was reduced to attempting only modest reforms in the Samsung empire.

“People felt liberated,” a Samsung marketer in Suwon told me. “They started immediately changing their office clothes into shorts and T-shirts and sandals. Huge change. Freer spirit.”

To me, it sounded too good to be true. And before long, I was proven right.

“Nothing changed,” the marketer told me. “In autumn, they made an announcement [about going] back to the old clothing guidelines.”

Jay Lee was trying to reboot the company culture at the very time Samsung was making shadowy equestrian deals on behalf of the president of South Korea. The company was increasingly trapped between tradition and the need to modernize.

The older Samsung Men, who’d given their careers to Samsung and the chairman, did not welcome the company’s new ways. In private, some doubted the capabilities and vision of Jay Lee.

“It looks like any other Western company in some sense,” Nam S. Lee, a former aide to Chairman Lee, groaned to me in a meeting at a Starbucks.

Ho Soo Lee, a former Samsung executive vice president, explained from his new executive suite at another chaebol, “For the older generation, the culture is sacred.”

• • •

After ousting President Park Geun-hye through impeachment, South Koreans had elected a left-wing president, Moon Jaein, who pledged to clean up corporate corruption. President Moon appointed Kim Sang-jo, a prominent economics professor at Hansung University in Seoul, to head South Korea’s corporate watchdog, the Korea Fair Trade Commission (KFTC).

The KFTC was Korea’s trustbuster, a regulatory agency that targeted monopolies, opened investigations and broke up cross-shareholdings and cartels. It had the power to fine companies and order corrective measures.

Kim was both respected and notorious, known to Koreans as “the chaebol sniper” for his fearless targeting of Samsung and other powerful firms as a corporate governance activist. In 2004, he heckled Samsung at a shareholder meeting for not doing anything when Chairman Lee II was accused of making illegal political donations—and rankled Samsung so much that its security guards dragged him out of the meeting.

“They were born as if they were princes in a kingdom,” Kim told the Nikkei Asian Review about the next generation of business leaders, which included Jay Lee. They “have lost the aggressive entrepreneurship that was shown by the generations of their founding grandfathers and fathers.”

The big test was whether the government had the willpower to dig in against the chaebol, or would dole out minor regulatory slaps. “While there’s no change in our belief that cross-shareholding is a serious problem, we have to weigh benefits and administrative costs of any such reform,” Kim also told reporters, tempering expectations. “We have limited capital to push for policy changes, and it is important to set priorities.”

In February 2018, Jay had already served one year of his five-year sentence when he, G.S. Choi and another former Samsung executive, Chang Choong-ki, entered the Seoul High Court for the verdict of their appeal, as they proclaimed their innocence of offering millions of dollars and race horses as a bribe for political favors and sought to get their sentences overturned.

The appeal was a relatively quiet affair. The panel of judges maintained that Jay Lee bribed President Park by supporting the equestrian career of the daughter of the former president’s friend. But Lee’s involvement was “passive compliance to political power,” one judge wrote. The court reduced the amount of the bribes Jay Lee was charged with having offered from $6.4 million to $3.3 million.

“[Former President] Park threatened Samsung Electronics executives,” one judge said. “The defendant provided a bribe, knowing it was bribery to support [the friend’s daughter], but was unable to refuse.”

The prosecutors had won a partial victory with the verdict, since Jay Lee wasn’t completely off the hook. But the sentencing itself was a victory for Samsung. Because Jay was cut some slack in terms of the bribery charges, the court reduced his five-year prison sentence to two and a half years. In addition, the judges commuted his sentence while upholding his conviction for bribery and embezzlement. The other executives were also given reduced, commuted sentences.

Jay looked stunned by the verdict, Bloomberg reported. Despite confirming his conviction for bribery, the court had decided the heir was free to go, with the stipulation that he would be on probation for four years. He blushed and exited the courtroom, and went to the hospital to see his father.

“The past year has been a really valuable time of looking back on myself,” Lee told reporters, his voice shaky at times.

In September 2018, President Moon traveled to North Korea for a diplomatic summit with the dictator Kim Jong Un. The government needed Samsung to build manufacturing plants and to invest for the South Korean economy, and Samsung appeared to be seeking government support in hard times. Accompanying the South Korean president was none other than Jay Lee—despite his two-and-a-half-year suspended prison sentence, and four-year probation—alongside almost a dozen other business leaders.

As per South Korean business tradition, Jay Lee’s criminal conviction seemed to be of little importance to political leaders, as long as he and his company helped the national interest.


Geoffrey Cain

Geoffrey Cain is a foreign correspondent and author who has covered Asia and technology for the Economist, the Wall Street Journal, Time and the New Republic. He lived in South Korea for five years.

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