[FOCUS] Samsung's public image in crisis due to Lee's possible imprisonment

By Park Sae-jin Posted : January 16, 2017, 18:25 Updated : January 16, 2017, 18:25

[Yonhap Photo]


Samsung, the world's leading microchip and smartphone maker, turned pale after special prosecutors sought a court-issued warrant to arrest its de facto head for his role in a corruption scandal that has fueled widespread public fury.

The fate of Jay Y. Lee, accused of bribery, embezzlement and perjury, will be decided on Wednesday by a court, but Samsung and other business bodies appealed for mercy, citing the gravity of its impact on South Korea's economy.

"If Lee is imprisoned, Samsung will see a critical vacuum in its leadership, especially when its head Lee Kun-hee has been bed-ridden for the last three years," the Korea Employers Federation said in a statement.

The federation urged the court not to arrest Lee, siding with Samsung's claim that Lee was forced to make cash contributions under "irresistible" pressure.

"The head of a global enterprise being investigated would critically affect its brand image that has built up over a long time and its future existence," it said. "If Jay Y. Lee is arrested, Samsung and South Korea would lose its international credit rating, which would lead to defamation of the country."

Lee's imprisonment would also affect the launching of Samsung's Galaxy S8 in April. The smartphone maker had thrown all its efforts into developing the newS8 as redemption for its combustible Note 7 fiasco that has damaged Samsung' brand value and reliability.

Experts say a good product alone will not be enough to lure smart consumers as consumers reflect a company's moral and ethical standards on a product when evaluating its value.

The case started taking a toll Monday. Samsung shares fell 2.14 percent to 1.83 million won (1,549 US dollars), reflecting concerns among investors that Lee's imprisonment is quite possible.

The 48-year-old only son of bedridden Samsung Group patriarch Lee Kun-hee would become the first business leader to face imprisonment in connection with the corruption scandal involving President Park Geun-hye. 

The move by special prosecutors comes at a sensitive time when Samsung seeks to develop auto-related technology and software about components, in-car entertainment, and autonomous driving.

In November, Samsung acquired Harman International Industries, a US-based global leader in connected car technology, for about eight billion US dollars. Harman provides infotainment and car security systems for BMW and Mercedes-Benz.

It was the biggest acquisition of foreign companies by a South Korean company, and Samsung was upbeat at the time, saying the deal would help the world's largest smartphone and microchip producer diversify its business portfolio into the rapidly growing market for connected technologies and auto electronics.

The acquisition marked Samsung's biggest investment outside South Korea under the leadership of Jay Y. Lee, the only son of bed-ridden group chief Lee Kun-Hee, 74. On behalf of his father, the 48-year-old has sought to realign Samsung's bloated structure before making his official debut as group leader.

US investors have filed a lawsuit opposing Samsung's proposed takeover of Harman International, claiming it was sold too cheaply via an unfair process. The deal requires a majority of votes at a meeting of shareholders, but Lee has been banned from travelling abroad.

Lee's imprisonment would seriously affect Samsung's efforts to focus on futuristic businesses like bioengineering, smart auto parts, batteries.

Lee has controlled group management from behind since his father was hospitalized in May 2014 after being hit by a stroke. The group has raised a huge amount of money in reserve as a preparation for the transfer of leadership. For his smooth power succession, Samsung has promised to improve corporate governance and introduce a holding company.
 
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