/ 22 April 2008

Samsung chief steps down after indictment

South Korea’s most powerful businessman announced on Tuesday he is stepping down after 20 years at the helm of the Samsung group, following his indictment for tax evasion and breach of trust.

A sombre Lee Kun-hee made the shock announcement at a press conference called to announce reforms to the scandal-tainted group, which employs 200 000 people and last year accounted for more than 20% of the nation’s exports.

”Today, I have decided to step down from the Samsung group chairmanship,” Lee (66) told the nationally televised event. ”I express my deepest apologies for causing great concern to the public as a result of the special probe.”

Special prosecutors charged Lee last Thursday following a three-month investigation into corruption allegations against the multinational. They cleared him of bribery and said he would remain free pending trial.

In a statement Samsung said four other executives, including vice-chairperson Lee Hak-soo, would step down by the end of June. The chairperson’s resignation is effective immediately.

Samsung said it would dismantle its powerful strategic planning office, a group of about 90 officials accused of helping the chairperson manage his hidden assets and illicitly transfer control of management to his son Lee Jae-yong.

Jae-yong would quit as a chief customer officer of Samsung Electronics, the group flagship, and work on operations in emerging markets ”in a tough environment”.

”We want to deliver a message to shareholders that Samsung will enhance corporate transparency and step up efforts to protect their interests,” vice-chairperson Lee Hak-soo told reporters after reading the statement.

He said chairperson Lee believes his son is not ready yet to take control of the group.

Asked if the chairperson would still try to pull strings behind the scenes, the vice-chairperson said: ”He means it. He will stay away from management.”

‘Samsung will be reborn’

A Samsung Electronics spokesperson, James Chung, said the shock resignation ”will ensure enormous changes to our group. This is just a start. Samsung will be reborn as a global world-class entity.”

But the group, which has 59 affiliates, seemed to be floundering in the wake of Lee’s decision. Lee Hak-soo said the post of chairperson would remain vacant while spokespersons said affiliates would be given greater decision-making power.

The independent probe, authorised by Parliament, had investigated allegations by the group’s former chief lawyer, who turned whistle-blower. Apart from the chairperson, it indicted nine other Samsung executives including the vice-chairperson. They were not detained pending trial.

The investigators said they had discovered 4,5-trillion won ($4,6-billion) of Lee Kun-hee’s hidden assets in bank and stock accounts opened under the names of executives.

They said Lee evaded taxes worth 112,8-billion won but there was no evidence the group had created a slush fund to bribe government officials, as the ex-lawyer had claimed.

The group said the 4,5-trillion won would be transferred into Lee Kun-hee’s real accounts and used for ”good causes”.

The Samsung chairperson could face between five years to life in jail if found guilty. Few analysts believe he will face heavy punishment.

On Tuesday he urged Koreans to ”keep supporting Samsung to [help it] grow into a first-class world business”. He told employees that 20 years ago he had pledged to make Samsung a world-class company. ”I’m really sorry for not living up to the promise.”

The special prosecutors in their report noted ”many structural problems” at Samsung — illicit transfer of managerial rights, lack of transparent accounting, and direct control over subsidiaries through a strategic planning agency with ”little legal basis”.

The complex management structure of South Korea’s conglomerates often allows founding families to control the group through cross-shareholdings, despite holding a relatively small stake.

Samsung began life in 1938 as a small trading company. Group-wide assets are now valued at $280,8-billion and its exports were worth $70-billion last year. — Sapa-AFP