Chiefs of Samsung, SK, LG entangled in legal risks

Lee Jae-yong, executive chairman of Samsung Electronics, enters the Seoul Central District Court building in Seoul to attend his ongoing trial on charges of instructing accounting fraud and an unfair merger of Samsung C&T and Cheil Industries, Friday. Yonhap

By Baek Byung-yeul

Uncertainties are weighing on Korea's top conglomerates — Samsung, SK and LG — as their owners have all become entangled in legal problems, which industry officials and experts say could hamper the future plans and major decisions of the respective groups, citing the U.S.-China power tussle, Russia-Ukraine war and pandemic-driven supply chain issues.

The owners of these family-controlled conglomerates play a crucial role in supporting the Korean economy, but, according to experts, judicial challenges surrounding their respective court trials could potentially bring adverse effects to the national economy.

“I can say the role of the top executives in Korean companies can be roughly estimated at 90 percent. They are in significant decision-making positions, which greatly influences the fate of an organization. If these leaders become entangled in judicial risks, they may not be able to make crucial decisions effectively, leading to a crisis for the company and potentially impacting the Korean economy as a whole,” Kim Dae-jong, a professor of business administration at Sejong University, said.

“In particular, Samsung accounts for approximately 25 percent of the Korean economy, while SK and LG are also significant conglomerates. When these companies in Korea are exposed to such risks, it poses a serious threat to the stability of the country's economy,” the professor said.

On Friday, prosecutors demanded a five-year prison sentence and a fine of 500 million won ($387,000) for Lee Jae-yong, executive chairman of Samsung Electronics, alleging that the Samsung Group leader engaged in unfair mergers of Samsung affiliates and accounting fraud.

The leader of the memory chip giant is accused of illegally interfering in a merger of Samsung C&T and Cheil Industries in 2015 for the purpose of facilitating his leadership succession. Prosecutors claimed that Lee and executives manipulated the merger ratio of Samsung C&T and Cheil Industries and that there was accounting fraud in Samsung Biologics, a subsidiary of Cheil Industries, in the process.

The executive chairman has previously served a total of 565 days in prison, starting in 2017, on charges of bribing former President Park Geun-hye and her close friend. He was granted a special pardon in August of last year but now faces another judicial risk.

The verdict for the current case is scheduled for January 26. Given there is a possibility of both the prosecution and Lee filing appeals depending on the outcome, Samsung Group will continue to be entangled in the case for some time yet.

In his final statement at the court, the chairman claimed, "I can clearly say that I never had any intention of pursuing the merger for my personal gain or causing harm to other shareholders. The reason behind the merger was for the future of the group.”

Lee also appealed for an opportunity to fulfill his responsibilities, saying he acknowledged the significant challenges ahead of him as Samsung leader. “As an entrepreneur, I have a duty to continuously generate profits for the company and provide employment opportunities to young people who will be responsible for the future.”

Chey Tae-won, left, chairman of SK Group, and Roh So-young, the daughter of late former President Roh Tae-woo, married in 1988, have three children but they are in divorce proceedings. Yonhap

Chey Tae-won, chairman of SK Group, and Koo Kwang-mo, chairman of LG Group, are also personally embroiled in recent lawsuits.

Chey, also chairman of the Korea Chamber of Commerce and Industry (KCCI) and co-chair of the Bid Committee for World Expo 2030 Busan, is currently overseas to attract World Expo 2030 to Busan. He has been making other headlines over a divorce lawsuit with his wife Roh So-young, the daughter of late former President Roh Tae-woo.

On Nov. 9, Roh told reporters during the appeal hearing that “it is pathetic that a 30-year marriage has come to this end.” On Nov. 11, in an interview with local media, she added, “those who break up other people's marriage must pay the price." In response, the chairman issued a statement, saying, "the marital relationship had already completely broken down long before I met a new person.”

In 2022, the first trial accepted Roh’s divorce claim and ordered the chairman to pay 100 million won in alimony and 66.5 billion won in cash as a property settlement. Both sides appealed.

Koo Kwang-mo, chairman of LG Group, speaks during the LG Tech Conference 2023 event in Seoul, March 16. The LG leader has been embroiled in an inheritance dispute since his mother and two sisters filed a lawsuit earlier this year seeking to redivide the estate of Koo Bon-moo, the late former chairman of LG Group. Courtesy of LG Corp.

The LG leader is also embroiled in an inheritance dispute over the ownership of late Chairman Koo Bon-moo’s shares since early this year when the chairman’s mother, Kim Young-sik, his two sisters, Koo Yeon-kyung, the chief of LG Welfare Foundation, and Koo Yeon-soo, filed a lawsuit with the court requesting the estate of the late chairman to be redistributed equally.

In a recording, released during the trial on Nov. 16, the mother and two sisters of the chairman, who had been involved in the management, are said to be suing to break the existing agreement they made with the chairman and redistribute the inheritance share, citing their intention to involve management.

"I want to receive some shares again. I want to receive shares for participating in management,” the LG Welfare Foundation chief said in the recording. Kim, the chairman's mother, said, "I would like to receive some equity again. I would like to receive shares to participate in management.”

The chairman received 8.76 percent of his father’s 11.28 percent shares in LG Corp., the holding company of LG Group, while the two sisters received 2.01 percent and 0.51 percent, respectively. Assuming that the inheritance property is divided again as claimed, the chairman’s shares, which were 15.95 percent as of September, will be reduced to 9.7 percent, which is lower than the combined shareholding of his mother and two sisters at 14.09 percent.

LG views the mother-daughter team's inheritance lawsuit as an attempt to shake up the management of LG Group and has said it will take a firm stance against them.

“The impact of their decisions and responsibilities on the Korean economy is enormous. In light of this, they should be able to manage their companies in accordance with the law and principles,” the Sejong University professor added.