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Samsung Heir's Legal Troubles Unlikely to Rock Company

The company flag of Samsung Electronics flutters next to the South Korean national flag in Seoul, South Korea, Jan. 16, 2017.

Samsung Electronics Vice Chairman Lee Jae-yong is preparing to challenge an arrest warrant in court, but analysts say profits at the conglomerate are unlikely to stumble if the corporate heir is locked up.

“Samsung Electronics is one of the top global IT companies. The decisions aren’t being made by one person,” said Kim Yong-goo, an analyst at Hana Financial Investment.

Kim said some decisions could be delayed and some projects disturbed in the short-term, but each of Samsung’s units has its own CEO to manage day-to-day operations. Plus, he said, there’s no certainty Lee will be arrested.

Economic concerns

Prosecutors requested the warrant this week for Lee, the de facto head of the Samsung Group, over allegations he bribed a friend of President Park Geun-hye in return for favors to smooth his succession as heir of the business group. Park also awaits her fate in court after being impeached.

FILE - Lee Jae-yong, a vice chairman of Samsung Electronics Co., arrives for a hearing at the National Assembly in Seoul, South Korea, Tuesday, Dec, 6, 2016.
FILE - Lee Jae-yong, a vice chairman of Samsung Electronics Co., arrives for a hearing at the National Assembly in Seoul, South Korea, Tuesday, Dec, 6, 2016.

There were already concerns about South Korea’s economy following a terrible year for exports and the current political turmoil. But the disturbance at the top of the country’s biggest and most famous conglomerate has put more people on edge.

A Reuters report said business lobby groups went to bat for Samsung and Lee, warning confidence in the economy could slip if he’s arrested. Samsung officials also said its key businesses could take a hit.

There is precedent in South Korea for big business leaders getting off easy because of their corporation’s massive role in the economy. Lee’s father, Chairman of Samsung Electronics Lee Kun-hee, was pardoned following a slush-fund scandal in 2008.

Investor sentiment

According to Yonhap News, Samsung share prices rebounded Wednesday two days after a sharp drop when prosecutors requested the arrest warrant for Lee.

“As long as their business performs well .. those aspects will be noticed more [than the scandal],” said Hana Financial’s Kim.

Kim said Samsung investors have a lot to look forward to right now, including the corporation’s planned acquisition of electronics company Harman International Industries.

“There are negative factors in the short-term, but I think those aren’t big enough to overshadow anticipated positive factors,” said Kim, adding Samsung Electronics shares are heavily undervalued.

Asset managers told Yonhap News they expect share prices to continue to climb in value.

Business reform?

Kim also mentioned the prospect of corporate restructuring, another positive for Samsung, he said, at a time when the public is demanding greater transparency from big business and government.

Lee, however, is the man expected to bring that transparency to Samsung and provide a road map for the future that includes creating new growth engines.

Chung sun-sup, the head of local corporate watchdog, said if Lee is arrested, management reform will be put on hold.

If prosecutors do get their way, it would be much harder to argue Lee is the man to lead Samsung into the future. The image of a detained billionaire being investigated for corruption would unlikely sit well the public, which has shown its frustration in the streets over too cozy business-government ties.

“The only difference between the past and the present is that now the citizens are angry about the links between politics and business, so this time Lee could face a severe punishment,” said Chung.