One cannot say another company had a much worse year from the reputational and financial perspective than the Korean electronics giant Samsung. The Galaxy Note 7 cellphone disaster cost the company billions and set it back in its rivalry with Apple and the eponymous iPhone. Yet, the company had hoped that 2017 would have brought it some better news, if not less bad news. That optimism ended last week when the de facto leader of the company Lee Jae-yong was arrested in South Korea on charges of bribery, embezzlement, and perjury. Jae-yong is the vice chairman of Samsung Electronics, son of the current company head and grandson of the group’s founder.
Jae-yong thought he was off the hook from the bribery scandal surrounding the country’s current President, a court having declined prosecutors’ request for his detention. New and additional evidence, however, was presented by prosecutors and he was arrested. His arrest forestalled his formal takeover of the company leadership reigns from his father who has largely been absent since a 2014 heart attack. The company has some 60 operating business units and without some type of cohesive leadership at the top, many believe the company’s overall efforts will founder.
The reputational damage to Samsung is front and center. Chung Sun-seop, head of the corporate analysis group Chaebul.com has said the arrest of Jae-yong will certainly tarnish the image of Samsung, noting, “The adverse impact on the group’s image is unavoidable … Samsung could be now seen as a criminal organization due to all these negative allegations.”
For The Man From FCPA, however, this ongoing corruption scandal brought up an effect of bribery too rarely focused on in the greater business world. While most companies could continue day-to-day operations without a top leader in place, the long-term effect can be quite negative. If there has not been sufficient succession planning, the cost to the company will be much more significant.