August 31, 2017 10:00 am JST

The Samsung scion is in jail -- and on the board

Shareholders may demand that Lee resign from the post

KIM JAEWON, Nikkei staff writer

Samsung Electronics is enjoying record earnings despite its vice chairman's legal woes. © AP

SEOUL Samsung Electronics Vice Chairman Lee Jae-yong still has a seat on the board of South Korea's largest conglomerate after being sentenced to five years in jail for bribery and embezzlement. Calls could grow, however, for him to relinquish the position.

A Seoul district court ruled on Aug. 25 that Lee paid bribes totaling 8.9 billion won ($7.88 million) to a friend of then-President Park Geun-hye to gain support for merging two group affiliates. Lee has filed an appeal, which will be assigned to a higher court.

"It is common sense that he should resign from the board," said Wi Pyoung-ryang, a researcher at Solidarity for Economic Reform, a civic group focusing on corporate governance. "He can always come back to the post after serving his jail term."

Wi also said Lee's monthly salary of 159 million won was excessive, and that he saw no reason why Lee should be paid more than Samsung Electronics CEO Kwon Oh-hyun, whose monthly salary in the first half of this year was 156 million won. As is required by all listed businesses, the company disclosed the wages of its four in-house board directors earlier this month.

CHANGING OF THE GUARD Lee joined the board in October 2016, around the time when the company was recalling its fire-prone Galaxy Note7 smartphone. His appointment was seen as a signal that he was gearing up to take over the chairmanship from his father, Lee Kun-hee, who has been hospitalized since having a heart attack in 2014.

Pressure to boot Lee from the board may come from investors, who have been stepping up calls for Samsung Electronics to adopt more shareholder-friendly policies. Last year, U.S. hedge fund Elliott Management sent a letter to the board suggesting that the company pay a special cash dividend, adopt a holding company structure and list on the Nasdaq.

Despite all the drama surrounding the Lee debacle, Samsung Electronics is enjoying record earnings, thanks in large part to strong demand for memory chips. The company has announced that it will invest $7 billion to expand its NAND flash memory production lines in Xian, China, over the next three years.

The South Korean manufacturer is the global leader in memory chips, accounting for a third of global NAND revenue, according to data from a market research company. Analysts say demand will likely continue to swell along with the spread of artificial intelligence and the internet of things.

Asia300

Samsung Electronics Co., Ltd.

South Korea

Market(Ticker): KRX(005930)
Sector:
Industry:
Electronic Technology
Telecommunications Equipment
Market cap(USD): 364,905M
Shares: 147.34M
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