Is This The Beginning Of Samsung's End?

In the last six months, Samsung has made the news headlines for the wrong reasons and it seems its just about to get worse. The very traits that helped define Samsung's brand — quality, outstanding performance and leadership — are now in question.

South Korean prosecutors on Monday issued a warrant for the arrest of the Samsung Vice Chairman Mr. Lee Jae-yong, the electronics giant's de facto leader, over accusations of bribery and other misdeeds.

Investigators allege that Mr. Lee was involved in payments made to Choi Soon-sil, an ally of the country's impeached President with cultish control, in a supposed bid to get approval for a merger.

Mr. Lee, the only son of Samsung’s incapacitated chairman, Lee Kun-hee, is accused of instructing Samsung subsidiaries to make multimillion-dollar donations to the family of Ms. Park’s confidante, Choi Soon-sil, and to two foundations Ms. Choi controlled in exchange for political favors from Ms. Park.

Samsung is South Korea’s largest chaebol, or family conglomerate. It is unrecognisable from the trading company - started by Jay Y.’s grandfather, Lee Byung-chull, almost 80 years ago. Samsung Group has prospered as the country has industrialised and thrived on export-led growth. In three decades, GDP per capita has increased fourfold, while the value of Samsung Electronics – the group’s crown jewel – has soared from less than $400 million to more than $200 billion in the last few years.

The special prosecutor, Park Young-soo, said the money represented bribes from the electronic company. He said that he had asked a Seoul court to issue an arrest warrant for Mr. Lee; it usually takes a few days for a court to decide whether to grant such a warrant.

If Mr. Lee is arrested, it will be a landmark in South Korea’s efforts to fight corruption in the country’s powerful family-controlled conglomerates, known as chaebol, and could disrupt his efforts to inherit management control of Samsung, whose tentacles in telecommunications, shipbuilding and a range of other industries reach throughout South Korea’s economy.

Last year, Samsung suspended the production, sales and exchanges of its flagship Note 7 device over reports of overheating batteries. Major U.S. carriers yanked the devices from shelves, citing safety concerns, and mail carriers have limited shipments.

The company was also usurped by Huawei (second after Apple) on the list of highest sold smartphones in 2016.

Although in South Korea, the Lee family empire spans financial services, hotels, shipyards and refineries; experts project that investors will trust the Lee family even less if Samsung Group fails to deliver growth. As a third-generation leader, Lee neither founded the company, nor can he replicate the extraordinary growth of his father’s reign. Sustaining Samsung’s leadership in complex and rapidly changing markets and this allegation could make or mar the reputation of the company if not properly managed.