The Elephant in Korea's Room

In October of 2007, the biggest scandal in modern Korean history broke in Seoul when a former Samsung top lawyer, acting through a Catholic priests' organization, accused the Samsung Group of maintaining as many as 1,000 illegal accounts in a slush fund that managed as much as US$7.5 billion off the books. Subsequently it transpired that Samsung had allegedly paid bribes to virtually every segment of Korean government and society – politicians, administration figures, judges, journalists.

Two books have emerged in recent weeks about Samsung. One is by Kim Yong-Chul, the former top Samsung attorney who provided personal documentation of funds held in his name by Samsung that were used to pay bribes. The book, Thinking of Samsung, is written in Korean and has not been translated. According to a review by Donald Kirk in the Christian Science Monitor, it is a 474-page account of how top Samsung officials "stole money from Samsung subsidiaries, offered bribes to politicians and prosecutors, among others, and shredded books."

The other, by Tony Michell, a visiting professor of strategy and management at the Korea Development Institute since 1999, is Samsung Electronics and the Struggle for Leadership of the Electronics Industry, published by John Wiley & Sons earlier this month. Mitchell manages to mention Kim Yong-Chul's name just once, on page 68 in the 248-page book, and describes Kim as a "would-be whistle-blower."

The book devotes a single paragraph to the scandal, saying the prosecutor was forced to cut short his investigation and conclude only that Lee Kyun-hee, the president of Samsung, had been guilty of tax evasion. "The implications for Samsung Electronics can only be considered in the context of other internal issues, which are described in the succeeding chapters."

The succeeding chapters do nothing of the sort. They compare Sony and Samsung, Samsung getting it right in the electronics business and Sony getting it wrong. They tell how Samsung had managed to develop its brand, they describe the making of the "Samsung Man," Korea's version of the Japanese sarariman, who gives his life to the company, adheres to its slogans and apparently believes in them. It contains chapters on Samsung's strategy to dominate the flat-panel screen business, the company's ability to retain creativity and avoid bureaucracy, fighting against the sclerotic practices that ultimately tied Sony in knots in Japan.

But what Michell doesn't address whatsoever is how much of Samsung's dominance of Korea's industry, particularly the electronics business, stems from its lips-to-teeth relationship with the Korean government. And while describing good management is fine, the fact is that all of Korea's chaebol owe as much to the government's espousal of their aims and refusal to put any of them in jail as they do to the drive and ambition of their chairmen and other leadership.

Although Lee Kun-hee was forced to resign in 2008 after being charged with tax evasion, he was never jailed. Kim Yong-chul and the Catholic group charged that Lee had managed the illegal funds and helped his son, Lee Jae-yong, buy shares of subsidiaries cheaply in a plot designed to hand over control of the conglomerate to the son.

Ignoring not just the 2007 scandal but a plethora of others seems utterly remarkable on Michell's part. Lee Kyun-hee got away with everything but murder, which fortunately he doesn't have appeared to have tried. Lee, slapped on the wrist for the extensive bribery detailed by Kim Yong-chul, was given a full pardon by President Lee Myung-bak and is now back in charge of Samsung Electronics.

That was hardly all. Samsung pleaded guilty in 2005 to participating in price-fixing over DRAM chips from 1999 to 2002 in a strategy that prosecutors said drove up personal computer prices and throttled competition –a management technique that Michell somehow overlooked. The company and its US subsidiary, Samsung Semiconductor, agreed to a settlement in which it paid US$300 million in fines. Five executives, including the president of Samsung Semiconductor, went to jail.

Lee Kun-hee himself fled Korea for five months in 2006 before returning in a wheelchair to apologize over allegations of illegally funding politicians. He later avoided prosecution after a wiretap by the country's main spy agency was fortuitously declared illegal. He also escaped prosecution when the statute of limitations ran out on a charge that he had provided up to US$5 million illegally to Lee Hoi-chang, the presidential candidate of the Grand National Party in 2002.

Samsung is not only South Korea's largest industrial group but the fifth largest company in the world as well, with interests including the world's largest electronics company, one of the world's biggest shipbuilders and one of the world's biggest construction companies. It employs 270,000 people, 170,000 of them in Samsung Electronics alone and accounts for 20 percent of Korea's gross domestic product.

Its sway is so powerful, Kirk writes, that Kim's book was not reviewed by any major newspapers for fear Samsung would pull its advertising. It was publicized through the Internet and Twitter and has sold 150,000 copies so far. Kirk calls Kim a "pariah in a highly conservative culture in which employees at other companies deride him for betraying his bosses, the system – and, in a sense, the country, and the corporate structure that keeps it afloat.

"So unthinkable was Kim's offense that the president of the Seoul Foreign Correspondents' Club, a Korean, repeatedly rejected requests by foreign correspondents to invite him as a speaker at the club," Kirk wrote. "All of which leads Kim to conclude, "'Our society is so corrupt, and people are blindfolded because everyone is living well and people are greedy.'"

"He's got a lot of money off the book," a Samsung Electronics spokesman, James Chung, told Kirk. "We are not angry at him. We are ignoring him."

So, apparently, did Tony Michell, who writes: "The biggest task (Samsung's new leadership) faced was to steer the company through the worst global slowdown since the Second World War." It certainly wasn't to face up to the loss of its chairman in a major scandal. He was pardoned by Lee Myung-bak, the new president, because he was what amounted to a national monument.