Published : Aug. 5, 2015 - 17:23
The succession battle in Lotte Group is rocking the nation at a time of the peak summer vacation period in Korea.
This fight to take the helm of the nation’s fifth-largest conglomerate is so bitter and dramatic that some editorials compare it to a “makjang” TV soap opera with a highly sensational and crappy plot.
The main actors are the nonagenarian founder of the Korean-Japanese conglomerate Shin Kyuk-ho and his two sons -- Shin Dong-joo and Shin Dong-bin, both in their early 60s.
Other founding family members, including the father’s younger brother, daughter and even his second ex-wife, have also joined the fray, making it difficult to predict how the Lotte drama will end.
Viewers have seen similar power-struggle scenes among scions of some family-run conglomerates, or chaebol, like Samsung, Hyundai, Doosan and Hanjin, just to name a few.
But this fraternal feuding in Lotte, the nation’s retail giant with operations from hotels to chemicals, appears to be more shocking.
The 93-year-old tycoon showed his dictatorial management style when he verbally dismissed six senior executives at Lotte Holdings in Japan, including the second son Shin Dong-bin, last week. In response, Shin Dong-bin, CEO of the de facto holding firm, declared the dismissal null and void because no board meeting took place, and sacked his father from the company after convening an official board meeting. It is unprecedented in Korean chaebol history for a scion to demote his or her founder and father.
Angered by the boardroom “coup,” the father is seemingly tilting toward his elder son Shin Dong-joo in the competition for choosing the successor of the Lotte empire, whose annual revenue amounts to more than 80 trillion won ($68.6 billion).
The successor is likely to be decided by a shareholder vote of Lotte Holdings, whose largest shareholder is Kojyunsya, a Japanese packing firm, reportedly with a 27.65 percent stake. The Shin brothers have similarly a 20 percent stake each in the holding company, so the unlisted packer can play a crucial role in the vote. The two firms have not disclosed information of their shareholders, but founder Shin reportedly controls the packer with about 50 percent stake.
Technically, the first son appears to have the upper hand in securing a controlling stake on the strength of his father’s support. But the board of directors in the holding company is under Shin Dong-bin’s influence and, furthermore, CEOs and labor unions of Lotte affiliates have resolved to support the second son, who is currently chairman of Seoul-based Lotte Group.
Regardless of who will emerge as the next leader of the retail giant, the Lotte saga is prompting public uproar as the succession feud is exposing the conglomerate’s old-fashioned management style characterized by the owner’s despotism and lack of transparent governance structure.
Some civic groups are threatening to launch a public campaign against Lotte products, the negative image of the conglomerate is fast spreading and, as a result, the share prices of some of its affiliates continue to slide, creating the biggest crisis yet for the group.
Under such a situation, the father and two sons urgently need to end the escalating family feud through reconciliation and compromise, because it could fan anti-chaebol sentiment in Korea, stop investment projects from being promoted by Lotte affiliates or hamstring their normal business activities.
Now, the senior Shin should announce his retirement as general chairman to pave the way for the next generation’s leader, considering his age and mounting controversy over his alleged mental capacity.
In addition, the trio should pledge to revamp the currently complicated and opaque corporate governance structure that has long helped them lead the Lotte empire in Korea and Japan through a labyrinth of cross-affiliate shareholdings with small stakes.
In the future, Lotte should also discard its much-criticized autocratic management style, in which important decisions are made simply through verbal instructions by a top leader.
Finally, the three should agree and clarify whether Lotte is a Korean or Japanese company. The father founded the Lotte confectionary firm in Japan three years after Korea was liberated from Japan‘s colonial rule in 1945.
The sales of Lotte companies in Korea reached 83 trillion won in 2013, while those of firms in Japan posted only 5 trillion won. But most of the major shareholders of Hotel Lotte in Seoul -- which virtually serves as a holding company for Seoul-based Lotte Group -- are Japanese firms including Lotte Holdings and Kojyunsya.
It is against this backdrop that many netizens regard Lotte as a Japanese business group and express support for the campaign to boycott their products and services on this soil, where anti-Japanese sentiment still persists.
Splitting Lotte into two conglomerates -- one in Korea led by Shin Dong-bin and the other in Japan under Shin Dong-joo -- can be a solution to ending the family feud. In Korea, family strife-ridden chaebol have often split into two or several groups.
Above all, it is time for founder Shin to step down from the behind-the-scenes stage.
By Shin Yong-bae
Shin Yong-bae is the business editor of The Korea Herald. He can be reached at shinyb@heraldcorp.com. ― Ed.