South Koreans loyal to Samsung despite scandals
International Herald Tribune/New York Times
HWASUNG, South Korea: For Choi Hae Pyung, head of an electronics components maker, the past year has been like steering a boat through a double-whammy storm: competition from China and the rising value of the Korean won squeezed his already-thin profit.
But those challenges were anticipated. What Choi did not foresee was a scandal.
For weeks, Samsung, a manufacturing giant that relies on thousands of parts suppliers like Choi's Green C&C Tech, has been battered by allegations of corruption. Executives were banned from leaving the country. Prosecutors ransacked Samsung's offices to find traces of a slush fund allegedly topping $217 million.
"Everyone is watching what's going to happen to Samsung," Choi said. "If Samsung takes a punch, we feel the shock too. If Samsung shrinks because of the investigation and cuts its investment, smaller companies like us will shut down in droves."
Choi's jitters help to explain why virtually no one in this country believes that despite the enormity of its recurring scandals, Samsung should ever go the way of Enron, a U.S. energy giant that went bankrupt in 2001 after revelations of fraudulent accounting.
South Koreans have grown tired of the corrupt ways of their big businesses. But because the economy is so heavily dependent on a handful of conglomerates, and their influence so pervasive in the daily life of South Koreans, people fear that striking these behemoths too harshly might well hurt their own economic well-being.
Thus it has become a pattern: a scandal rocks one of these conglomerates, known as chaebol, roughly once a year. By the time the scandal has run its course, however, executives accused of bribery walk away with light punishment: usually a suspended prison term accompanied by an admonition from the judge that they would have been punished more sternly were it not for their "contribution to the economy."
So they all go back - supposedly in remorse, sometimes after making huge donations to charities - and continue to run their companies. Until the next scandal.
South Koreans saw no compelling reason to believe it would be any different this time.
"There is a lot of slapping on the wrist and embarrassing exposure, but not full prosecution," said Tom Coyner, president of Soft Landing Korea, a management consultancy. "The scary thing about this is that people generally recognize Samsung is one of the best managed corporations in South Korea. So if that's the case with Samsung, it makes one wonder what degree of corruption we might find elsewhere."
In a speech to Samsung workers Monday, Yun Jong Yong, vice chairman of Samsung Electronics, the group's flagship company, lamented the "confusion" created by the scandal and said that "there was fear among shareholders and investors that it may disrupt our management."
This scandal is unlike any Samsung had faced because it features a whistle-blower, a rare species in South Korea.
In the past month, Kim Yong Chul, Samsung's former chief in-house lawyer and a prosecutor before that, has claimed that Samsung had stashed away a gigantic slush fund. He said it was created with company money, hidden in dummy stock and bank accounts in the names of Samsung executives, including his own, and used to bribe politicians and bureaucrats, prosecutors and journalists and even to finance an art collection for the chairman's family.
Samsung denies wrongdoing.
But for many, fear deepened that the company that they have taken great pride in - an epitome of Korean export prowess, along with the embrace of global standards of corporate responsibility - is still held hostage to what critics call a "culture of corruption" at home.
Twenty years ago last Saturday, Chairman Lee Kun Hee, 65, took over Samsung from his father and founder, Lee Byung Chull. A recluse with a slight, premature stoop but a visionary among CEOs, he has transformed Samsung from a cheap imitator of Japanese electronics into a 140 trillion won, or $152 billion, empire that gives Sony, Nokia and Philips a good run for their money, marketing fashionable cellphones, computers and TV sets.
On Saturday, Samsung held no celebration for the anniversary. In addition to the bribery scandal, there was another cloud over the anniversary: Lee's ambitious and allegedly dubious scheme to pass the torch to his son and heir, Jae Yong, now under the scrutiny of the public and prosecutors.
"Samsung is the spine of the economy. If it shakes, the economy shakes," said Na Seong Lin, an economist at Hanyang University in Seoul. "If Samsung does something, it becomes the standard. But it never cast off the old vices of chaebol. It's not free from corruption."
Samsung is the largest among the chaebol - family-controlled conglomerates that were created during the country's military rule as engines of its growth. They still dominate the economy, now the 12th largest in the world.
With 59 affiliates and 250,000 employees globally, it generated sales of $160 billion in 2006, or one-sixth of the country's gross domestic product. Millions more, like Choi, depend on Samsung for their livelihood.
But when Koreans say they no longer live in the Republic of Korea, the country's official name, but in the "Republic of Samsung," it's not meant as a compliment.
Samsung remains one place South Korea's union organizers could not crack.
Samsung is omnipresent in Korea. Choi and his wife cook their food on a Samsung electric range. They call each other on Samsung cellphones. They watch the Samsung Lions baseball team on a Samsung TV.
Come summer, they will take their two children to Samsung Everland, South Korea's largest amusement park, because their Samsung credit card allows a 50-percent discount.
Choi has himself and his car insured with Samsung.
His Green C&C Tech factory is nestled on a small roadside hill in Hwasung, south of Seoul. Around it, a new bedroom community is going up, many of its apartment complexes emblazoned with a coveted brand name among home buyers: Samsung.
Inside Choi's two-story factory, 100 workers use machines built by Samsung Techwin, another Samsung subsidiary, to make "inverters." These components light up lamps behind flat-panel screens used in computers and TV sets, like the ones built by Samsung.
After the workers go home, the factory, like many thousands of homes and shops across the country, is guarded by S1, a Samsung security firm.
About 70 percent of Choi's 12 billion won, or $13 million, sales last year came from parts shipped to Samsung.
"I am proud of supplying to Samsung," Choi said. "Samsung creates jobs and improves the living standards of Koreans."
A worker at Choi's factory, Min Chun Gi, saw "nothing fresh" in the scandal and "no reason not to trust Samsung because of it."
"People suspect every big company is doing it," he said. "It was Samsung's bad luck that it gets all the drubbing."
Lee Ji Soon, an economist at Seoul National University, noted an overall trend toward reform of chaebol but foresaw "scandals waiting to happen," as long as "companies find it hard to do business without currying favors with those with power."
Heavy-handed bureaucrats, inconsistent prosecution, regulations based less on reality and more on momentary political considerations, and a lack of legalized lobbying - all this leads business executives to resort to bribery as protection, according to Lee and Coyner, of Soft Landing Korea.
"No matter what problems it might have, Samsung is still the cleanest and most competitive company we can depend on in this time of economic uncertainty," Choi said. "If we hurt Samsung too much, we will make the mistake of burning down our house to kill bedbugs."