Samsung's "Prince" Li Zaiyu: Tragedy of Korean Tragedies

The South Korean court made a first-instance ruling on the 25th, and Samsung Electronics’ vice president, Li Zaijun, was sentenced to five years’ imprisonment on charges of bribery. Although his lawyer stated that he would appeal, Li Zaiyi may become the head of Samsung’s first sentence in 79 years. At the age of 23, he joined Samsung and later studied in Japan and the United States. He joined Samsung management at the age of 33. As the third generation of the chaebol, Li Zaijun has a gorgeous resume that ordinary Koreans can hardly afford.

In 2014, his father, Samsung Electronics Chairman Lee Kin Hee, suffered from an unconscious coma. When he was 46, Lee Jae-Hyun took over Samsung's scepter as successor. In the past three years, Li Zaiyu appeared to be in an infinite position on the road to succession. However, he has not yet secured a large position. He is in trouble because he was involved in the South Korean president Park Geun-hyh’s “pro-governance” and even was sentenced.

The criminals sentenced to criminal scandals in Korea’s chaebols are very public and their violations are mostly related to the succession of family businesses. Li Zaiyu also failed to escape such a fate. The identity of the "heiror" has long foreshadowed the ups and downs of his life.

With "Golden spoon" was born

Li Zaiyu was born in 1968. His father is the second generation head of the Samsung Group, South Korea's richest man and South Korea's largest company, Li Jianxi, and his mother is Hong Luoxi, the daughter of South Korea’s “Central Daily” president. Thanks to her mother's natural beauty, Li Zaixi and her three sisters are all "high value" and are like the wealthiest children in the Korean drama "Heirs."

As the only child in the family, Li Zaiyu has been cherishing thousands of pets since he was a child. He was trained early as a successor. The talented man he did not live up to the expectations of the family and successfully admitted to Seoul University, the top Korean university.

In 1991, Li Zaijun, who had not yet graduated from college, entered Samsung. Later, under the arrangement of his father Lee Kun Hee, he first went to Japan to study abroad, received an MBA from Keio University, and then studied abroad for five years at Harvard Business School in the United States and completed a doctoral course.

In 2001, Li Zaiyi returned to Samsung after studying abroad. In the following ten years, he acted in a low-key manner. He always followed his father’s heart to learn modestly and rarely exposed it in the media. Some people commented that unlike Li Jianxi’s “Emperor Fan”, Li Zai’s personality is gentle, approachable and has a good public image. Some media even captured the fact that Li Zaiyi alone went out without an attendant. As an important member of the South Korean top-ranking chaebol family, there are no groups of bodyguards around. This allows Koreans to see Lee's uniqueness.

There is also Li Zaiyu’s giant wedding. In 1998, Li Zaijun and her father, the president of the Elephant Group, Korea's number one food company, held a century wedding in South Korea. This marriage between the two chaebols has attracted nearly half of South Korea's political and business circles.

However, the good times are not long. In 2009, Lin Shiling filed a divorce suit with the court, demanding a “break-up fee” of up to 100 billion won. This century’s marriage ended in a gloomy and embarrassing situation.

From behind the scenes to the stage

Li Jianxi has been hailed as the spiritual leader of Samsung. It was under his leadership that Samsung was able to develop into a truly top multinational company.

Under the shadow of his father, Li Zaihao was appointed vice president of Samsung Electronics in 2012, but he has few bright results. What really pushed Li Zaiyu to the stage was his father Lee Kun-hee's illness. In May 2014, the 72-year-old Li Jianxi admitted to hospital for a sudden myocardial infarction and has been in a coma since. As the only male successor, Li Zaitang did not let him formally become the actual controller of Samsung Group.

After 2014, Samsung Electronics suffered a decline in profits for several consecutive quarters. Li Zaiqi faced challenges and tried to find new growth drivers and profit sources for Samsung, which has been highly dependent on smart phone business. He through a generous corporate mergers and acquisitions, boldly clean up non-core operating areas, and Samsung's future direction in the field of medicine, biology and IT integration. Insiders commented that during the three years of succession, Lee has shown his commendable performance and remarkable performance.

However, after entering the market in 2016, Samsung's new launch of the Gallet NOTE7 cell phone appeared shortly after the market's explosion, causing Samsung to fall into an unprecedented major crisis. Although Samsung picked up the mess as quickly as possible, no senior person in the company was responsible for this. The Huffington Post's Korean version commented that this contrasts sharply with Samsung's handling of quality issues during the Li Jianxi era. In the 1990s, in order to improve the quality of Samsung's mobile phones, Li Jianxi had shocked South Korea by burning 150,000 poor-quality mobile phones in the face of more than 2,000 employees. It is with this determination to improve quality, Samsung Electronics has been able to quickly rise and seize the throne of many world number one. Obviously, compared with his father, Li Zaiyu’s leadership is not enough.

Cast a big mistake for succession

The outside world once hoped that Li Zaiyu, who is deeply influenced by the concept of modern enterprise management in the West, will get rid of the financial problems of collusion between businessmen and businessmen, secret funds, and insider trading that were common in his father's day and lead Samsung to a healthier growth track. However, the sudden fall of his father caused Li Zaiyu to “completely plan” to complete the succession between hurries. He not only failed to cut off the old-fashioned financial crisis, but he did not hesitate to take risks in order to take over.

In May 2015, in the midst of controversy, Li Zaijun dominated the merger of Samsung's Samsung products and the first woolen fabric to form a new Samsung product, and he became a 16.5% shareholder. New Samsung's largest shareholder. The new Samsung product not only directly holds a 4.06% stake in Samsung Electronics, but also indirectly controls Samsung Electronics’ share of 7.6% through holding Samsung Life. Given the important position of the new company in the equity control structure of Samsung Group, it can be assumed that this merger will play a decisive role in Li's succession.

However, this critical merger has continued to be criticized. The outside world has been questioning Samsung's intention to underestimate the value of Samsung's property and achieve the purpose of merger at the expense of other shareholders' interests. At the end of 2016, Park Geun-hye’s “pro-governance” incident revealed that Samsung had allegedly sent a bribe of 43 billion won (approximately US$38 million) to Park Geun-hye’s “confided” Cui Shun, in exchange for approval of the Korean government-controlled national pension, the majority shareholder of Samsung Products. The fact of the transaction surfaced. Li Zaiyu was summoned for interrogation by the prosecution for this purpose and was eventually arrested in February this year.

In subsequent trials, Samsung was equipped with a strong lineup of lawyers and vowed to "justice" Li Zaiyu, but in the end it failed to stop the guilty verdict of the court of first instance. In the recent last trial, when the prosecutor asked him to be sentenced to imprisonment for 12 years, Li Zaiyu, who had always shown confidence and stability, could not help but cry on the spot and cry and blame himself.

The plight of Korean successors

Some media commented that if it weren’t for Samsung’s successor, Li Zaihao might become a good businessman or a well-known scholar. However, when he shouldered the responsibility of the entire family, Li Zaichen seemed unable to escape the fate of the chaebol family.

In a sense, the tragedy of Li Zaiyu is a microcosm of the plight of the inheritor of the Korean chaebol. The expensive inheritance tax and gift tax are "a big mountain" facing the successors of the chaebol. According to Korean law, taxpayers are required to pay more than a certain amount of inheritance and gifts, which will inevitably make the family's shares more and more diluted. In recent years, the chaebol families have adopted unconventional methods to achieve the transfer of management rights at a “lesser cost”. Insider trading, low-cost acquisitions, tax evasion and other illegal phenomena are common occurrences, and increasingly attract public opinion and public dissatisfaction.

The SK International Financial Fraud case in 2003, the modern Glovis scandal in 2006, and the Samsung special case in which Li Jianxi was sentenced to probation in 2008 were rooted in keeping family management rights and paving the way for the next generation.

Many analysts believe that Li Zaiqi’s “taking the risk” is also to avoid paying the inheritance tax that may be as high as 6 trillion won (about 5.3 billion U.S. dollars) and to control Samsung as soon as possible. For this reason, he eventually chose to carry out illegal transactions, pay bribery to the President’s relatives, infringe on the interests of the public and shareholders, and attempted to continue to control a large chaebol empire by holding a minority stake.

Li Zaiyu was pushed to the trial stage. Personally, he was a robbery in life. However, it may be a rare opportunity for Samsung and other South Korean chaebols.

More and more voices believe that the chaebol family holds only a minority stake, but through complicated ownership structures, it has achieved pervasive control over large enterprise groups and has inherited and replaced corporate leadership positions. This management model has fallen seriously behind. In the era, it also violated the principles of democracy and business spirit.

In the future, South Korea’s chaebols will improve corporate governance and enhance transparency. However, the inheritors will certainly become more and more bumpy.

In the era of “after Li Zaijun”, where will Samsung go? It remains to be seen whether the market is still under the control of Li Zaijun’s command in the prison, whether his sister Li Fuzhen took the lead, or whether he will embark on the path of being managed by professional managers.