SEOUL (Reuters) - There are three things South Koreans cannot avoid: death, taxes and Samsung.
The Samsung Group, the country’s largest conglomerate, runs hospitals where Koreans are born, apartments for raising families, funeral halls for deaths and just about everything else in between.
Best known for Samsung Electronics, the world’s top maker of LCD screens and memory chips, the Samsung Group had sales in 2006 of $159 billion, about equal to one-sixth of the country’s gross domestic product.
With almost 60 affiliates, it accounts for about one fifth of the country’s exports and stock market value.
Welcome to “The Republic of Samsung.”
“Samsung’s influence surpasses the economic level and reaches out to influence politics, society, culture and even ideology,” said Kim Sang-jo, executive director of Solidarity for Economic Reform, which is calling for better corporate governance.
But according to a former top Samsung legal executive, it is a corrupt place where the company kept a slush fund of nearly $220 million to bribe public officials so they would not pry too deeply into its management practices.
This week, prosecutors widened a probe into Samsung by banning more of its executives from traveling overseas and raiding affiliates to look for incriminating documents.
Samsung has vehemently denied the allegations and issued a detailed rebuttal of the claims made by the former executive Kim Yong-cheol, who left the company in 2004 and waited three years before blowing the whistle on corruption.
Samsung, which means “three stars”, is South Korea’s best-known brand as well as its flagship firm for global success.
Samsung has faced corruption investigations before and mostly emerged unscathed, but having allegations made by someone who was privy to the group’s inner workings is new.
The investigation comes just ahead of the country’s December 19 presidential election, where corruption has been a heated issue, and could spill over into the April election for parliament.
BASEBALL, PHONES AND POWER
Samsung, founded in 1938 as a trading company, is one of the family-owned conglomerates called “chaebol” that formed cozy ties with the government to raise the country from the ashes of the 1950-1953 Korean War and into the world’s 13th largest economy.
Often these ties have been too cozy and led to accusations of endemic corruption in South Korean business.
Some of the highest ranking chaebol leaders have been found guilty of corruption but given token sentences amounting to a slap on the wrist with judges saying that harsh penalties would deprive key companies of irreplaceable leadership.
The group was the only one of the major chaebol to escape massive government restructuring after a financial crisis gripped the country a decade ago.
It has also seen laws originally designed to diminish its power watered down so as not adversely impact one of the country’s largest employers.
“If Samsung’s business started to shake, ordinary people would feel the effects,” said Sung Tae-yoon, an economics professor at Yonsei University.
The list of Samsung products and services is dizzying. It makes mobile phones, clothes and precision glass. It provides credit cards, insurance and economic advice for the government. It runs hotels, a baseball team and the country’s biggest amusement park.
And it is with the amusement park operator called Everland that the group’s power rests, analysts say.
The family that runs the Samsung Group maintains its influence through a complicated network of cross shareholdings among group companies. At the top of the structure is unlisted Everland, which serves as the de facto holding firm.
In October 2005, a Seoul court found two former top group executives guilty of conspiring in a 1996 deal to help the children of Chairman Lee Kun-hee, the country’s richest person, buy a majority stake in Everland at below-market prices.
Son Lee Jae-yong, also known as Jay Y. Lee, who is considered as being groomed to take over, is South’s Korea’s fifth-richest person with a net worth of $1.7 billion, according to Forbes magazine.
Samsung has warned that the latest probe could upset its business operations but some analysts said the investigation could shed welcome light on the group’s secretive management.
South Korean shares have traditionally traded lower than those in other industrial nations because of corporate governance problems, an element of what is known as the “Korea discount.”
“This could be a great opportunity for Samsung to improve its transparency,” said Lee Min-hee, an analyst at Dongbu Securities. “Foreign investors are not fazed by the current investigation, and in fact could be buying even more Samsung shares on expectations of improved governance.”
Additional reporting by Jessica Kim and Marie-France Han; editing by Keiron Henderson and Megan Goldin
Our Standards: The Thomson Reuters Trust Principles.