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Samsung heir to go back on trial: Chaebols must be reformed

The de facto Samsung leader, along with four other executives, denied charges of bribery and embezzlement in 2017 even as many observers referred to his prosecution as ‘the trial of the century’. Mr. Lee was accused of funneling $36m in bribes to a secretive confidante of the former president as well as embezzlement, illegal transfer of property abroad and perjury before Parliament. Now the issue has become a live legal matter again, the prospect of another conviction raises the prospect of the heir to the largest company in South Korea again spending time in jail. The initial conviction presented an opportunity for the South Korean political leadership to deliver on long held promises of reforming the chaebol model.

Whilst chaebols have transformed Korea over the past six decades, their existence causes problems for the wider economy. Small and medium companies (SMEs) have insufficient opportunity to expand whilst in the chaebol shadow, caused by operating structures. Changing how chaebols conduct business would help this. Without sufficient access to the business generated by Korea’s leading companies, new players are prevented from growing and gaining the business rewards which come from economies of scale and increased exposure.

Though chaebols are most responsible for the transformation of South Korea into one of the most advanced economies in the world, they are still chiefly responsible for the ‘Korea discount’. Shares of chaebol-linked companies trade at lower multiples of earnings than rivals in the United States, Europe or Japan. Even though the recently announced retrial of Mr. Lee has yet to take place, that the case has reached this point suggests a redefining of how close relations with Presidents and leading politicians the owners of chaebols should be allowed to become is in order.