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'A conviction and jail time would be a watershed event for S. Korea'

South Korea was taken by surprise with the arrest of Lee Jae-yong, the de facto leader of Samsung, over his alleged involvement in a massive corruption scandal. DW talks to expert Stephan Haggard about the repercussions.

Deutsche Welle: Industrial conglomerates, the so-called chaebols, have been one of the signature features of the South Korean economy. Several governments have tried to overhaul this system in the past. Has anything been accomplished so far?

Stephan Haggard: A surprising feature of South Korea - given its overall economic success - is the weakness of corporate governance and the continuing play of corruption in the economy. It would be wrong to say that no improvements have been made, particularly following a spate of reforms in the wake of the financial crisis of 1997-98; several important firms were allowed to fail, such as Daewoo. But reforms since then under both liberal and conservative governments have been minimal, in part because the size of the firms has cowed politicians and regulators.

Do you think, Lee's arrest and other recent scandals involving South Korea's big corporations will add momentum to economic reform in S. Korea?

Professor Stephan Haggard (JT MacMillan)

Professor Stephan Haggard

That will depend powerfully on the outcome of the impeachment and the election. There are very well-organized NGOs in the South that have pressed for corporate governance reform for years, so the agenda is there and some incremental improvements have been made. But partisanship will determine whether there is determination to push this forward. It is not impossible that a center-right candidate might prevail.

What are the consequences for Samsung and the company's reputation?

Samsung is an incredibly diversified group, with CEOs managing each of the major groups. Given the depth of managerial talent in the group, it is not clear that this will have a longer-term impact on the group. Remember that standard market factors also matter: how is Samsung doing with respect to its many different product markets?

What does the arrest of Lee Jae-yong mean for the future relationship between big corporations and the S. Korean government?

I suspect that there will certainly be a reform agenda on corruption and bribery, but the big issue is actually in the internal corporate governance issues as well: the way families control groups with small equity stakes and sweetheart deals such as the ones which transferred important equity stakes to Lee Jay-young and that allowed continuing family control.

One of your research papers is titled "Too Big To Indict? The Samsung Case". If there were to be an indictment would that be a watershed event for S. Korea?

It would certainly be a watershed event, given that it is Samsung, but only if there is a conviction and jail time. His father was indicted and then pardoned, in part because he was considered such an economic icon. I don't think his son enjoys the same deference, and although the legal aspects of the case will matter - can they really prove a quid pro quo? Politics, at this point, probably cuts against judicial sympathy.

Stephan Haggard is Professor of Korea-Pacific Studies at the University of California in San Diego.

The interview was conducted by Thomas Kohlmann.

 

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