Samsung’s defacto leader and heir Lee Jae-Young was recently accused of bribery in exchange for political favors following the impeachment of South Korean President Geun Hye. Defense attorneys have countered that Lee’s payments were charitable contributions, not bribes. Yet regardless of the outcome of the case, Samsung today has a reputation crisis in its hands.
It’s too early to say if the South Korean electronics and appliance maker will recover from this. It will largely depend how investors and consumers respond as Lee’s case unfolds in the coming months. Needless to say, investors won’t be happy if the scandal ends up hurting sales and public confidence in the company, but bear in mind that many consumers might not even be aware of allegations against the company.
If you use a Samsung device, have you switched brands after reading about its bribery accusations? For many consumers, the answer is no. This is the same answer we would have received in 2012 if we asked Walmart shoppers if they intended to forgo low priced merchandise in favor of spending more money elsewhere after the retail giant was hit with bribery allegations in 2012. As the retailer today works to resolve federal investigations into whether it bribed government officials in markets from Mexico to India and China, it’s worth pointing out that most people forgot (or never knew) that Walmart was the target of a long running bribery investigation.
Nonetheless, one of the ways Walmart weathered its bribery scandal was by making changes. These changes, which took place amid a several-years-long investigation, included internal restructuring of personnel as well as compliance programs. Other companies have employed similar strategies to recover from reports of high-profile corporate misbehavior, using the discovery of unethical business practices and even criminal activity as opportunities to re-examine existing policy and procedures, and make improvements.
Like Walmart shoppers, many Samsung users are likely unaware of the company´s current bribery scandal. However, they are painfully still aware of last year´s recall when shortly after launching the Galaxy Note 7, the company was forced to recall more than 3 million devices in light of reports of exploding batteries and overheating. Estimated losses exceed $6 billion dollars. This was particularly troubling for Samsung’s reputation because it impacted consumers’ day-to-day lives far more than the headlines about corporate executive misconduct.
So for many consumers, a product recall can has a much more negative impact than a bribery scandal—even when the charges are extremely serious, as they are against the Samsung heir and four other top executives—who have now been formally indicted on charges including include bribery and embezzlement.
As a career prosecutor, I can tell you that with cases involving large-scale criminal behavior, the wheels of justice turn slowly. For both stakeholders and shareholders, the passage of time tends to lessen the initial blow of bad news, which is diluted further with news of other corporate misbehavior and ethical violations. As sensational as the Samsung allegations are, it will be a matter of time before another company steals the spotlight, as corporate scandals of various kinds continue to rock the business world.
Will Samsung recover? Probably, although the extremely serious nature of the allegations may result in lagging profits for a significant amount of time. This is because Samsung investors and consumers will react differently. Investors who are aware and outraged by the charges are likely to consider investing elsewhere. Consumers, on the other hand, even if they are aware of the charges, will likely stay with the company, as long as their devices continue to work properly.
Wendy Patrick is a career prosecutor and business ethics lecturer at San Diego State University. The views expressed in this article are her own.
