Samsung Group is embroiled in a political scandal that has dominated headlines in South Korea recently. It’s one of several major conglomerates accused of making donations to non-profit foundations in exchange for political favors, which in Samsung’s case may have smoothed the path for its controversial 2015 merger.
After prosecutors raided Samsung’s corporate offices in Seoul, South Korea, at the end of November, company executives appeared before a parliamentary committee on December 6. Samsung executives were joined by others from Hyundai, SK Group, and Lotte Group, all answering questions related to the ongoing investigation against South Korea’s president Park Geun-hye, and her involvement in extorting money from major corporations.
The November raid took place alongside another at the national pension fund, which according to a local report from the Yonhap News Agency, may have been pressured into supporting a controversial Samsung merger in 2015. The fund’s approval is regarded as vital to the merger’s success, and a surprising move at the time, due to allegations it benefitted the Samsung Group’s controlling family more than the shareholders. Samsung’s Lee Jae-Yong told the committee the meeting had taken place, but the merger wasn’t discussed.
Several decisions were taken at the meeting which impact Samsung’s business operations. The strategy office which approved and sent out the payments to the foundation will be closed down, and the company will no longer take part in activities with the Federation of Korean Industries, a lobby group which acts as an intermediary between the government and businesses.
Bad to worse
For Samsung, it’s the latest embarrassment in a problematic year, which may get worse. The Galaxy Note 7’s demise over safety concerns is expected to cost the company billions, and has left it not only with a hole in its device range, but also a PR nightmare as buyers question whether to remain loyal to the brand. Soon after the Note 7’s failure, Samsung recalled millions of washing machines for similar safety reasons.
“Samsung has become an embarrassment to Korea, where saving face is still a factor in reputation management,” a crisis management expert told The Guardian, adding the firm’s board must, ”firmly take charge of the company’s direction,” at this crucial time. It’s not the first time Samsung has been raided in relation to the investigation into Park and Choi either. Another took place earlier in November,
Samsung Group is the largest family-owned business conglomerate in South Korea, and is the parent company to Samsung Electronics, Samsung Heavy Industries, Samsung Financial Services, and various other Samsung companies.
President Park has been accused of assisting in an extortion scheme with unofficial presidential aide Choi Soon-sil. More than 50 businesses were allegedly pressured to make donations potentially worth $69 million to sporting foundations backed by Choi, which were set up following the Samsung merger, then used for personal financial gain and in exchange for as-yet unknown deals.
The head of Samsung Group, Lee Jae-Yong, answered the committee’s questions. It was revealed Samsung gave more than $17m to the foundations, and paid for a horse as a gift to Choi Soon-sil’s daughter, valued at $850,000. It’s also accused of paying $3m for equestrian training for Choi’s daughter. However, Lee said he wasn’t aware of the payments until recently, and stated they weren’t pay-offs or kickbacks. He apologized for paying for the horse, and said Samsung would take responsibility if any involvement in the scandal was revealed.