[DECODED: LOTTE] Lotte crisis revolves around family affairs

[THE INVESTOR] It all started from one man. A young native of Ulsan, South Gyeongsang Province, was brave enough to start a business in Japan in 1941 with only 83 yen in his pocket.

Seven years later, he established the Lotte confectionery business to sell chewing gum and cake in postwar Japan.

The huge subsequent success of the business led him to expand more. After a diplomatic normalization pact signed in 1965, Shin Kyuk-ho returned to his home country with 30 million won to launch a Korean confectionery business -- the beginning of Lotte’s dual management system and complicated corporate governance structure that stretching across the two countries.

In less than half a century, Lotte has become the nation’s fifth-largest conglomerate. The group runs a wide range of businesses from retail and entertainment to petrochemicals and construction, generating around 90 trillion won in annual revenue.

In the ’50s and ’60s, Shin had his younger brothers to look after his business in Korea. But they left Lotte and his elder brother in a series of ugly feuds over the control of Lotte Korea and other ownership matters. Each established their own business. Shin Choon-ho established an instant noodle company Nongshim in Korea, the producer of signature ramen brand Shin Ramyun, while Shin Sun-ho founded Sansas, another instant noodle-maker in Japan.

Shin Joon-ho, the youngest of the brothers, who was once Kyuk-ho’s right hand man, also left him after a legal battle over the ownership of a prestigious piece of real estate in Yangpyeong-dong. He is currently the chairman of Purmil, formerly known as Lotte Ham and Milk. Shin Jung-hee, the founder’s sister, also served as president of Donghwa Duty Free Store, before it was merged with Hotel Lotte, the group’s duty free operator.

After the founder’s relationship with his siblings fell apart one by one, his children from three marriages – the last one common-law -- all jumped into the business in hopes of inheriting his father’s legacy.

His two sons from Shin’s second marriage, to Hatsuko Shigemitsu, spent decades to win his father’s approval. But their aging father, who is now 93, never gave a verdict until a bitter family feud last year.

Shin Dong-bin who led Lotte Korea since the early 1990s, seized power to dethrone his father. Shin Dong-joo, former vice chairman of Lotte Holdings in Tokyo that controls Lotte’s Korea operation through Hotel Lotte, challenged his younger brother, claiming that he was their father’s chosen heir.

The brutal fraternal war is ongoing. The two are facing a third major showdown on June 25, at a shareholders’ meeting of Lotte Holdings. Shin Dong-joo is expected to hold the current Lotte chairman responsible for driving Lotte into chaos. Lotte Group and its affiliates as well as the owner family are being investigated by the prosecution over alleged creation of slush funds, embezzlement and lobbying.

The two battling brothers have taken different paths. Shin Dong-joo, 61, is known as a man with a calm personality, while his brother, one year younger, is a man with ambition and drive. While Dong-bin, a Columbia University graduate with an MBA degree widened his business perspectives by spending another six years at Nomura Securities’ London office, Dong-joo climbed the corporate ladder mostly within Lotte’s operation in Japan.

Pundits often describe Shin Dong-bin as an ambitious man, referring to his marriage to Ogo Manami from an Japanese aristocrat family that reportedly yields considerable influence. The family is close to Japan’s royal family.

Shin Dong-joo is married to Cho Eun-joo, a Korean-American whom he met while working at Lotte’s overseas office in the U.S. Cho had not been seen in the public for a long time until her first public appearance last year at a press conference held by her husband to claim status as his father’s legitimate heir. Instead of Shin Dong-joo, who has faced heated criticism for his poor Korean, Cho read his statement in Korean, in what was seen as a desperate attempt to appease an angry public.

The two brothers have two half-sisters whom their father had from his first and third marriages.

Shin Young-ja, born from the founder’s first marriage to Noh Soon-hwa is embroiled in a bribery allegations that she received kickbacks from a cosmetic company head in exchange for a floor space at Lotte Duty Free stores.

The founder’s “third wife,” Seo Mi-kyung, is also suspected of receiving business favors from Lotte Group.

The 57-year-old Seo is the 1977 winner of the group’s Miss Lotte beauty pageant and has a 33-year-old daughter who works as an adviser to Hotel Lotte. Seo has no legal status as the founder’s spouse.

By Cho Chung-un (christory@heraldcorp.com)